<PAGE> 1
Rule 424(b)5
Registration Statement No. 333-36115
PROSPECTUS SUPPLEMENT
(To Prospectus dated December 13, 1996)
$180,000,000
CMS ENERGY LOGO
7 5/8% UNSECURED NOTES DUE 2004
------------------------
Interest payable May 15 and November 15
------------------------
THE 7 5/8% SENIOR UNSECURED NOTES DUE 2004 (THE "NOTES") WILL BE ISSUED AS A
SERIES OF DEBT SECURITIES OF CMS ENERGY CORPORATION (THE "COMPANY") DESCRIBED AS
"SENIOR DEBT SECURITIES" IN THE ACCOMPANYING PROSPECTUS. THE NOTES WILL BEAR
INTEREST FROM THE ORIGINAL DATE OF ISSUE, AND INTEREST ON THE NOTES WILL BE
PAYABLE SEMIANNUALLY ON MAY 15 AND NOVEMBER 15, COMMENCING NOVEMBER 15 , 1997.
THE NOTES WILL MATURE ON NOVEMBER 15, 2004. THE NOTES ARE REDEEMABLE AT THE
OPTION OF THE COMPANY, IN WHOLE OR IN PART, AT ANY TIME OR FROM TIME TO TIME, ON
NOT LESS THAN 30 DAYS' NOTICE, AT THE REDEMPTION PRICES DETERMINED AS DESCRIBED
HEREIN, TOGETHER WITH ACCRUED INTEREST TO THE DATE FIXED FOR REDEMPTION. IN THE
EVENT OF ANY CHANGE IN CONTROL (AS DEFINED HEREIN), A HOLDER (AS DEFINED HEREIN)
MAY REQUIRE THE COMPANY TO PURCHASE ALL OR ANY PART OF SUCH HOLDER'S NOTES AT A
PRICE EQUAL TO 101% OF THEIR PRINCIPAL AMOUNT, PLUS INTEREST ACCRUED THEREON, IF
ANY, TO THE DATE OF PURCHASE. SEE "DESCRIPTION OF THE NOTES" HEREIN AND
"DESCRIPTION OF DEBT SECURITIES -- SENIOR DEBT SECURITIES" IN THE ACCOMPANYING
PROSPECTUS.
THE NOTES WILL BE REPRESENTED BY ONE OR MORE GLOBAL NOTES (EACH A "GLOBAL
NOTE"), IN REGISTERED FORM, WITHOUT COUPONS, WHICH WILL BE REGISTERED IN THE
NAME OF A NOMINEE OF THE DEPOSITORY TRUST COMPANY ("DTC") FOR PERSONS HOLDING
BENEFICIAL INTERESTS IN THE GLOBAL NOTE DIRECTLY OR INDIRECTLY THROUGH DTC
PARTICIPANTS. BENEFICIAL INTERESTS IN THE GLOBAL NOTE WILL BE REPRESENTED BY,
AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, BOOK-ENTRY ACCOUNTS
MAINTAINED BY DTC AND ITS PARTICIPANTS. EXCEPT IN LIMITED CIRCUMSTANCES,
DEFINITIVE NOTES WILL NOT BE ISSUED IN EXCHANGE FOR BENEFICIAL INTERESTS IN A
GLOBAL NOTE. SEE "DESCRIPTION OF THE NOTES -- BOOK-ENTRY SYSTEM."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
-------- -------------- -----------
<S> <C> <C> <C>
Per Note................ 99.471% 1.625% 97.846%
Total................... $179,047,800 $2,925,000 $176,122,800
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $125,000.
------------------------
The Notes are offered, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Reid & Priest LLP, counsel for the Underwriters. It is expected
that the delivery of the Notes will be made on or about September 26, 1997
through the book-entry facilities of DTC, against payment therefor in
immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
CIBC WOOD GUNDY SECURITIES CORP.
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
SALOMON BROTHERS INC
September 23, 1997
<PAGE> 2
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITERS.
NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS SUPPLEMENT OR AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION TO
ANY PERSONS TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR ANY
SALE MADE HEREUNDER DOES NOT IMPLY THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE ON WHICH SUCH
INFORMATION IS GIVEN.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents by Reference............. S-3
Selected Consolidated Financial Data........................ S-3
The Company................................................. S-4
Capitalization.............................................. S-5
Use of Proceeds............................................. S-6
Recent Developments......................................... S-6
Description of the Notes.................................... S-6
Underwriters................................................ S-20
Legal Opinions.............................................. S-21
Experts..................................................... S-21
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Documents by Reference............. 2
CMS Energy.................................................. 3
Use of Proceeds............................................. 4
Ratio of Earnings to Fixed Charges.......................... 4
Description of Debt Securities.............................. 4
Description of Capital Stock................................ 14
Dividends and Price Range of CMS Energy Common Stock........ 18
Legal Opinions.............................................. 19
Experts..................................................... 19
Plan of Distribution........................................ 19
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITERS."
S-2
<PAGE> 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Reference is made to "Incorporation of Certain Documents by Reference" in
the accompanying Prospectus. At the date of this Prospectus Supplement, the
Incorporated Documents (as defined in the accompanying Prospectus) include: (i)
the Company's Annual Report on Form 10-K for the year ended December 31, 1996;
(ii) the Company's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1997; and (iii) the Company's Current Reports on Form 8-K dated
March 7, April 24, May 1, June 5, June 11, July 1 and August 21, 1997.
SELECTED CONSOLIDATED FINANCIAL DATA
The following is a summary of certain financial information of the Company
and its Consolidated Subsidiaries and is qualified in its entirety by, and
should be read in conjunction with, the detailed information and consolidated
financial statements, including notes thereto, which are incorporated in the
accompanying Prospectus by reference. See "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------ -------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIO DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating Revenue.......................... $3,614 $3,890 $4,333 $2,221 $2,349
Pretax operating income.................... 503 603 677 378 380
Operating expenses......................... 3,111 3,287 3,656 1,843 1,969
Income taxes............................... 92 118 139 85 79
Net income................................. $ 179 $ 204 $ 240 $ 138 $ 138
Earnings per average common share -- CMS
Energy Common Stock...................... $ 2.09 $ 2.27 $ 2.45 $ 1.37 $ 1.34
Earnings per average common share -- Class
G Common Stock........................... -- .38 1.82 1.66 1.34
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 79 $ 56 $ 56 $ 60 $ 51
Net plant and property..................... 4,814 5,074 5,280 5,094 5,389
Total assets............................... 7,378 8,143 8,615 8,151 9,136
Long-term debt, excluding current
maturities............................... 2,709 2,906 2,842 3,116 3,077
Notes payable.............................. 339 341 333 108 246
Other liabilities.......................... $2,867 $3,071 $3,282 $2,896 $3,370
Company-obligated mandatorily redeemable
preferred securities of Consumers Power
Company Financing I...................... -- -- 100 100 100
Company-obligated convertible preferred
securities of CMS Energy Trust I......... -- -- -- -- 173
Preferred stock of subsidiary.............. 356 356 356 356 356
Common stockholders' equity................ $1,107 $1,469 $1,702 $1,575 $1,814
RATIO OF EARNINGS TO FIXED CHARGES(1):..... 2.07x 1.94x 2.01x 2.33x 2.13x
</TABLE>
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(1) For the purposes of computing the ratio of earnings to fixed charges,
earnings represent net income before income taxes, net interest charges and
the estimated interest portion of lease rentals.
S-3
<PAGE> 4
THE COMPANY
The Company, incorporated in 1987, is the parent holding company of
Consumers (as defined herein) and Enterprises (as defined herein). Consumers, a
combination electric and gas utility company serving in all 68 counties of
Michigan's Lower Peninsula, is the largest subsidiary of CMS Energy. Consumers'
customer base includes a mix of residential, commercial and diversified
industrial customers, the largest segment of which is the automotive industry.
Enterprises is engaged in several domestic and international energy-related
businesses including: (i) oil and gas exploration and production; (ii)
acquisition, development and operation of independent power production
facilities; (iii) energy marketing, risk management and energy management to
large customers; (iv) transmission, storage and processing of natural gas; and
(v) international energy distribution.
The Company conducts its principal operations through the following seven
business segments: (i) electric utility operations; (ii) gas utility operations;
(iii) oil and gas exploration and production operations; (iv) independent power
production; (v) energy marketing, services and trading; (vi) natural gas
storage, transmission and processing; and (vii) international energy
distribution. Consumers or Consumers' subsidiaries are engaged in two segments:
electric operations and gas operations. Consumers' electric and gas businesses
are principally regulated utility operations. The Company and its subsidiaries
routinely evaluate, invest in, acquire and divest energy-related assets and/or
companies both domestically and internationally. Consideration for such
transactions may involve the delivery of cash or securities.
The Company's 1996 consolidated operating revenue was $4,333 million. This
consolidated operating revenue was derived from its electric utility operations
(approximately 57% or $2,446 million), its gas utility operations (approximately
30% or $1,282 million), gas transmission, storage and marketing (approximately
7% or $320 million), oil and gas exploration and production activities
(approximately 3% or $130 million) and independent power production and other
non-utility activities (approximately 3% or $155 million). Consumers'
consolidated operations in the electric and gas utility businesses account for
the majority of the Company's total assets, revenue and income. The
unconsolidated share of non-utility electric generation and distribution and gas
transmission and storage revenue for 1996 was $557 million.
Consumers is a public utility serving almost six million of Michigan's nine
and a half million residents in 68 counties in Michigan's Lower Peninsula.
Consumers' service area includes automotive, metal, chemical, food and wood
products industries and a diversified group of other industries. Consumers' 1996
consolidated operating revenue of $3,770 million was derived approximately 65%
($2,446 million) from its electric utility business, approximately 34% ($1,282
million) from its gas utility business and approximately 1% ($42 million) from
its non-utility business. Consumers' rates and certain other aspects of its
business are subject to the jurisdiction of the Michigan Public Service
Commission and the Federal Energy Regulatory Commission.
The foregoing information concerning the Company and its subsidiaries does
not purport to be comprehensive. For additional information concerning the
Company and its subsidiaries' business and affairs, including their capital
requirements and external financing plans, pending legal and regulatory
proceedings and descriptions of certain laws and regulations to which those
companies are subject, prospective purchasers should refer to the Incorporated
Documents (as defined in the accompanying Prospectus).
S-4
<PAGE> 5
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at June 30, 1997, and as adjusted to reflect the sale of the Notes
offered hereby, the application of the estimated net proceeds from such sale and
certain other items referred to below. See "Use of Proceeds." The table should
be read in conjunction with the Company's consolidated financial statements and
notes thereto included in the Incorporated Documents. See "Incorporation of
Certain Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1997
--------------------
ACTUAL AS ADJUSTED
------ -----------
(IN MILLIONS)
(UNAUDITED)
<S> <C> <C>
Non-current portion of capital leases....................... $ 89 $ 89
Long-Term Debt:
Other long-term debt (excluding current maturities)(1).... 3,077 2,904
7 5/8% Senior Unsecured Notes Due 2004(2).............. -- 180
------ ------
Total long-term debt................................... 3,077 3,084
------ ------
Company-obligated mandatorily redeemable preferred
securities of Consumers Power Company Financing I(3)...... 100 100
Company-obligated convertible preferred securities of CMS
Energy Trust I(4)......................................... 173 173
Company-obligated mandatory redeemable preferred securities
of Consumers Energy Company Financing II(5)............... -- 120
Total Stockholders' Equity:
Preferred Stock of subsidiary(5).......................... 356 236
Common stockholders' equity............................... 1,814 1,814
------ ------
Total stockholders' equity............................. 2,170 2,050
------ ------
Total capitalization................................. $5,609 $5,616
====== ======
</TABLE>
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(1) Adjusted to reflect the payment at maturity of $172,000,000 of the Company's
9.5% Series A Senior Deferred Coupon Notes due October 1, 1997, the planned
redemption on October 1, 1997 of $175,098,000 principal amount of the
Company's 9.875% Series B Senior Deferred Coupon Notes at a premium of
$2,882,113, and borrowings of $173,857,313 under the Company's revolving
credit facility to partially fund such planned payment and redemption.
(2) Adjusted to reflect the issuance of $180 million principal amount of 7 5/8%
Senior Unsecured Notes Due 2004.
(3) The primary asset of Consumers Power Company Financing I is approximately
$103 million principal amount of 8.36% subordinated interest notes due 2015
from Consumers.
(4) The primary asset of CMS Energy Trust I is approximately $178 million
principal amount of 7.75% convertible subordinated debentures due 2027 from
the Company.
(5) Adjusted to reflect the issuance of 4,800,000 Consumers Energy Company
Financing II preferred securities on September 11, 1997, and the redemption
by Consumers of its outstanding $7.45, $7.68, $7.72 and $7.76 Series
Preferred Stock on September 15, 1997. The primary asset of Consumers Energy
Company Financing II is approximately $124 million principal amount of 8.20%
subordinated interest notes due 2027 from Consumers.
S-5
<PAGE> 6
USE OF PROCEEDS
The net proceeds from the sale of the Notes will be used to discharge, at
maturity, $172,000,000 principal amount of the Company's 9.5% Series A Senior
Deferred Coupon Notes due October 1, 1997 and to redeem, $175,098,000 principal
amount of the Company's 9.875% Series B Senior Deferred Coupon Notes at a
premium of $2,882,113, on October 1, 1997. The remaining $173,857,313 necessary
to discharge these obligations will be borrowed under an existing revolving
credit facility.
RECENT DEVELOPMENTS
On September 12, 1997, the Company announced that a 50/50 joint venture of
the Company's independent power unit, CMS Generation Co. ("CMS Generation"), and
a unit of Asea Brown Boveri, an international electrical engineering company
("ABB"), obtained the right to possess, operate and maintain the Jorf Lasfar
coal-fueled power plant, a two unit, 660 megawatt facility, in Morocco. This is
the first step in the $1.5 billion transaction for the privatization and
expansion of the largest independent power facility in Africa. CMS Generation
and ABB made an equity contribution in the joint venture company totalling $395
million. Funds obtained for the equity investment were provided through equity
bridge loans by a number of private banks. The Company guaranteed CMS
Generation's 50 percent share of the $395 million borrowing to fund the equity
contribution. The initial disbursement of an additional $920 million of debt
financing with a consortium of governmental, multilateral and private financial
institutions in several countries is expected to be drawn later in 1997.
Reinvested cash from operations estimated at $190 million is expected to provide
the balance of the financing needed for the project. The Company announced that
construction would begin immediately on two new generating units totaling 696
gross megawatts, more than doubling the capacity of this major base-load
facility to 1356 megawatts. An affiliate of CMS Generation has assumed operation
and maintenance management of the plant and will operate all four units. When
completed, the Jorf Lasfar plant is expected to meet approximately 65 percent of
Morocco's base-load electricity demand and to comprise approximately one-third
of the country's total electricity supply. Power from the plant will be sold to
the Office National de l'Electricite, the Moroccan national power utility, under
a 30-year purchase agreement.
In August 1997, the Company filed a shelf registration statement with the
Commission for the issuance and the sale of up to $200 million General Term
Notes(R) ("GTNs"), Series D. From July 1, 1997 through September 23, 1997, the
Company issued $62.684 million of GTNs, Series C.
On August 29, 1997, Consumers permanently ceased operations at one of its
two nuclear power plants, Big Rock Point, after 35 years of service, because the
Company's management determined that the plant would be uneconomical to operate
in an increasingly competitive environment. The plant was originally scheduled
to close May 31, 2000, at the end of the plant's operating license. Big Rock
Point was capable of producing 67 megawatts of electricity. The process to
decommission the plant began in September 1997, and it is expected to take five
to ten years to return the site to its original condition. A decommissioning
fund with a current balance of approximately $170 million, together with future
collections from customers and future fund earnings, is expected to be adequate
for plant decommissioning expenses.
DESCRIPTION OF THE NOTES
The following information concerning the Notes supplements, and should be
read in conjunction with, the statements under "Descriptions of Debt Securities"
in the accompanying Prospectus. Capitalized terms not defined herein are used as
defined in the accompanying Prospectus.
GENERAL
The Notes will be issued as a series of Senior Debt Securities under the
Senior Debt Indenture as supplemented by the Fourth Supplemental Indenture
thereto dated as of September 26, 1997 (the "Supplemental Indenture"), and will
be limited in aggregate principal amount to $180,000,000.
The Notes will be unsecured debt securities of the Company.
S-6
<PAGE> 7
As of June 30, 1997 the Company had outstanding approximately $1.550
billion aggregate principal amount of indebtedness, none of which was secured.
None of such indebtedness would be senior to the Notes and the Notes will not be
senior to such indebtedness. The Notes will rank on a parity in right of payment
with all other unsecured and unsubordinated indebtedness of the Company.
The Notes will be issued in the form of one or more Global Notes, in
registered form, without coupons, in denominations of $1,000 or an integral
multiple thereof as described under "Book-Entry System." The Global Notes will
be registered in the name of a nominee of DTC. Except as set forth herein under
"Certificated Notes," owners of beneficial interests in a Global Note will not
be entitled to have Notes registered in their names, will not receive or be
entitled to receive physical delivery of any such Note and will not be
considered the registered holder thereof under the Senior Debt Indenture.
PAYMENT AND MATURITY
The Notes will mature on November 15, 2004, and will bear interest at the
rate of 7 5/8% per annum. At maturity, the Company will pay the aggregate
principal amount of the Notes then outstanding.
Each Note will bear interest from the original date of issue, payable
semiannually on May 15 and November 15, commencing November 15, 1997, and at
maturity.
In any case where any interest payment date, repurchase date or maturity of
any Note shall not be a Business Day (as hereinafter defined) at any place of
payment, then payment of interest or principal (and premium, if any) need not be
made on such date, but may be made on the next succeeding Business Day at such
place of payment with the same force and effect as if made on the interest
payment date, repurchase date or at maturity; and no interest shall accrue on
the amount so payable for the period from and after such interest payment date,
redemption date, repurchase date or maturity, as the case may be, to such
Business Day.
REDEMPTION
The Notes will be redeemable at the Company's option, in whole or in part,
at any time or from time to time, at a redemption price equal to 100% of the
principal amount of such Notes being redeemed plus the Applicable Premium, if
any, thereon at the time of redemption, together with accrued interest, if any,
thereon to the redemption date. In no event will the redemption price ever be
less than 100% of the principal amount of the Notes plus accrued interest to the
redemption date.
The following definitions are used to determine the Applicable Premium:
"Applicable Premium" means, with respect to a Note (or portion
thereof) being redeemed at any time, the excess of (A) the present value at
such time of the principal amount of such Note (or portion thereof) being
redeemed plus all interest payments due on such Note (or portion thereof),
which present value shall be computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (B) the principal amount of such
Note (or portion thereof) being redeemed at such time. For purposes of this
definition, the present values of interest and principal payments will be
determined in accordance with generally accepted principles of financial
analysis.
"Treasury Rate" means the yield to maturity at the time of computation
of United States Treasury securities with a constant maturity (as compiled
and published in the most recent Federal Reserve Statistical Release
H.15(519) (the "Statistical Release") which has become publicly available
at least two Business Days prior to the redemption date or, in the case of
defeasance, prior to the date of deposit (or, if such Statistical Release
is no longer published, any publicly available source of similar market
data)) most nearly equal to the then remaining average life to stated
maturity of the Notes; provided, however, that if the average life to
stated maturity of the Notes is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given.
S-7
<PAGE> 8
If less than all of the Notes are to be redeemed, the Trustee shall select,
in such manner as it shall deem appropriate and fair, the particular Notes or
portions thereof to be redeemed. Notice of redemption shall be given by mail not
less than 30 nor more than 60 days prior to the date fixed for redemption to the
Holders of Notes to be redeemed (which, as long as the Notes are held in the
book-entry only system, will be DTC (or its nominee) or a successor depository);
provided, however, that the failure to duly give such notice by mail, or any
defect therein, shall not affect the validity of any proceedings for the
redemption of Notes as to which there shall have been no such failure or defect.
On and after the date fixed for redemption (unless the Company shall default in
the payment of the Notes or portions thereof to be redeemed at the applicable
redemption price, together with interest accrued thereon to such date), interest
on the Notes or the portions thereof so called for redemption shall cease to
accrue.
No sinking fund is provided for the Notes.
PURCHASE OF NOTES UPON CHANGE IN CONTROL
In the event of any Change in Control (as defined below) each Holder of a
Note will have the right, at such Holder's option, subject to the terms and
conditions of the Senior Debt Indenture, to require the Company to repurchase
all or any part of such Holder's Note on a date selected by the Company that is
no earlier than 60 days nor later than 90 days (the "Change in Control Purchase
Date") after the mailing of written notice by the Company of the occurrence of
such Change in Control at a repurchase price payable in cash equal to 101% of
the principal amount of such Notes plus accrued interest to the Change in
Control Purchase Date (the "Change in Control Purchase Price").
Within 30 days after the Change in Control Date, the Company is obligated
to mail to each Holder of a Note a notice regarding the Change in Control, which
notice shall state, among other things: (i) that a Change in Control has
occurred and that each such Holder has the right to require the Company to
repurchase all or any part of such Holder's Notes at the Change in Control
Purchase Price; (ii) the Change in Control Purchase Price; (iii) the Change in
Control Purchase Date; (iv) the name and address of the Paying Agent; and (v)
the procedures that Holders must follow to cause the Notes to be repurchased.
To exercise this right, a Holder must deliver a written notice (the "Change
in Control Purchase Notice") to the Paying Agent at its corporate trust office
in Detroit, Michigan, or any other office of the Paying Agent maintained for
such purposes, not later than 30 days prior to the Change in Control Purchase
Date. The Change in Control Purchase Notice shall state (i) the portion of the
principal amount of any Notes to be repurchased, which must be $1,000 or an
integral multiple thereof; (ii) that such Notes are to be repurchased by the
Company pursuant to the applicable change-in-control provisions of the Senior
Debt Indenture; and (iii) unless the Notes are represented by one or more Global
Notes, the certificate numbers of the Notes to be repurchased.
Any Change in Control Purchase Notice may be withdrawn by the Holder by a
written notice of withdrawal delivered to the Paying Agent not later than three
Business Days prior to the Change in Control Purchase Date. The notice of
withdrawal shall state the principal amount and, if applicable, the certificate
numbers of the Notes as to which the withdrawal notice relates and the principal
amount, if any, which remains subject to a Change in Control Purchase Notice.
If a Note is represented by a Global Note, the Depository (as defined
herein) or its nominee will be the holder of such Note and therefore will be the
only entity that can require the Company to repurchase Notes upon a Change in
Control. To obtain repayment with respect to such Note upon a Change in Control,
the beneficial owner of such Note must provide to the broker or other entity
through which it holds the beneficial interest in such Note (i) the Change in
Control Purchase Notice signed by such beneficial owner, and such signature must
be guaranteed by a member firm of a registered national securities exchange or
of the National Association of Securities Dealers, Inc. ("NASD") or a commercial
bank or trust company having an office or correspondent in the United States and
(ii) instructions to such broker or other entity to notify the Depository of
such beneficial owner's desire to cause the Company to repurchase such Notes.
Such broker or other entity will provide to the Paying Agent (i) a Change in
Control Purchase Notice received from such beneficial owner and (ii) a
certificate satisfactory to the Paying Agent from such broker or other entity
that it represents
S-8
<PAGE> 9
such beneficial owner. Such broker or other entity will be responsible for
disbursing any payments it receives upon the repurchase of such Notes by the
Company.
Payment of the Change in Control Purchase Price for a Note in certificated
form (a "Certificated Note") for which a Change in Control Purchase Notice has
been delivered and not withdrawn is conditioned upon delivery of such
Certificated Note (together with necessary endorsements) to the Paying Agent at
its office in Detroit, Michigan, or any other office of the Paying Agent
maintained for such purpose, at any time (whether prior to, on or after the
Change in Control Purchase Date) after the delivery of such Change in Control
Purchase Notice. Payment of the Change in Control Purchase Price for such
Certificated Note will be made promptly following the later of the Change in
Control Purchase Date or the time of delivery of such Certificated Note.
If the Paying Agent holds, in accordance with the terms of the Senior Debt
Indenture, money sufficient to pay the Change in Control Purchase Price of a
Note on the Business Day following the Change in Control Purchase Date for such
Note, then, on and after such date, interest on such Note will cease to accrue,
whether or not such Note is delivered to the Paying Agent, and all other rights
of the Holder shall terminate (other than the right to receive the Change in
Control Purchase Price upon delivery of the Note).
Under the Senior Debt Indenture, a "Change in Control" means an event or
series of events by which (i) the Company ceases to beneficially own, directly
or indirectly, at least 80% of the total voting power of all classes of Capital
Stock then outstanding of Consumers (whether arising from issuance of securities
of the Company or Consumers, any direct or indirect transfer of securities by
the Company or Consumers, any merger, consolidation, liquidation or dissolution
of the Company or Consumers or otherwise); or (ii) any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d) of the Exchange Act) becomes the
"beneficial owner" (as such term is used in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person or group shall be deemed to have "beneficial
ownership" of all shares that such person or group has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 35% of the Voting Stock of the
Company; or (iii) the Company consolidates with or merges into another
corporation or directly or indirectly conveys, transfers or leases all or
substantially all of its assets to any person, or any corporation consolidates
with or merges into the Company, in either event pursuant to a transaction in
which the outstanding Voting Stock of the Company is changed into or exchanged
for cash, securities, or other property, other than any such transaction where
(A) the outstanding Voting Stock of the Company is changed into or exchanged for
Voting Stock of the surviving corporation and (B) the holders of the Voting
Stock of the Company immediately prior to such transaction retain, directly or
indirectly, substantially proportionate ownership of the Voting Stock of the
surviving corporation immediately after such transaction.
The Senior Debt Indenture requires the Company to comply with the
provisions of Regulation 14E and any other tender offer rules under the Exchange
Act which may then be applicable in connection with any offer by the Company to
purchase Notes at the option of Holders upon a Change in Control. The Change in
Control purchase feature of the Notes may in certain circumstances make more
difficult or discourage a takeover of the Company and, thus, the removal of
incumbent management. The Change in Control purchase feature, however, is not
the result of management's knowledge of any specific effort to accumulate shares
of its common stock or to obtain control of the Company by means of a merger,
tender offer, solicitation or otherwise, or part of a plan by management to
adopt a series of anti-takeover provisions. Instead, the Change in Control
purchase feature is a term contained in many similar debt offerings and the
terms of such feature result from negotiations between the Company and the
Underwriters. Management has no present intention to propose any anti-takeover
measures although it is possible that the Company could decide to do so in the
future.
No Note may be repurchased by the Company as a result of a Change of
Control if there has occurred and is continuing an Event of Default described
under "Events of Default" below or in the accompanying Prospectus (other than a
default in the payment of the Change in Control Purchase Price with respect to
the Notes). In addition, the Company's ability to purchase Notes may be limited
by its financial resources and its
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inability to raise the required funds because of restrictions on issuance of
securities contained in other contractual arrangements.
CERTAIN RESTRICTIVE COVENANTS
The Senior Debt Indenture contains the covenants described below. Certain
capitalized terms used below are defined herein under the heading "Certain
Definitions."
Limitation on Restricted Payments
Under the terms of the Senior Debt Indenture, so long as any of the Notes
are Outstanding and until the Notes are rated BBB- or above (or an equivalent
rating) by Standard & Poor's and one Other Rating Agency, at which time the
Company will be permanently released from the provisions of this "Limitation on
Restricted Payments," the Company will not, and will not permit any of its
Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any
dividend or make any distribution on the Capital Stock of the Company to the
direct or indirect holders of its Capital Stock (except dividends or
distributions payable solely in its Non-Convertible Capital Stock or in options,
warrants or other rights to purchase such Non-Convertible Capital Stock and
except dividends or distributions payable to the Company or a Subsidiary), (ii)
purchase, redeem or otherwise acquire or retire for value any Capital Stock of
the Company, or (iii) purchase, repurchase, redeem, defease or otherwise acquire
or retire for value, prior to scheduled maturity or scheduled repayment thereof,
any Subordinated Indebtedness (any such dividend, distribution, purchase,
redemption, repurchase, defeasing, other acquisition or retirement being
hereinafter referred to as a "Restricted Payment") if at the time the Company or
such Subsidiary makes such Restricted Payment: (1) an Event of Default, or an
event that with the lapse of time or the giving of notice or both would
constitute an Event of Default, shall have occurred and be continuing (or would
result therefrom); or (2) the aggregate amount of such Restricted Payment and
all other Restricted Payments made since May 6, 1997 would exceed the sum of:
(a) $100,000,000 plus 100% of Consolidated Net Income from May 6, 1997 to the
end of the most recent fiscal quarter ending at least 45 days prior to the date
of such Restricted Payment (or, in case such sum shall be a deficit, minus 100%
of the deficit) and (b) the aggregate Net Cash Proceeds received by the Company
from the issue or sale of or contribution with respect to its Capital Stock
after May 6, 1997.
The foregoing provisions will not prohibit: (i) dividends or other
distributions paid in respect of any class of Capital Stock issued by the
Company in connection with the acquisition of any business or assets by the
Company or a Restricted Subsidiary where the dividends or other distributions
with respect to such Capital Stock are payable solely from the net earnings of
such business or assets; (ii) any purchase or redemption of Capital Stock of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Capital Stock of the Company (other than Redeemable Stock or
Exchangeable Stock); (iii) dividends paid within 60 days after the date of
declaration thereof if at such date of declaration such dividends would have
complied with this covenant; or (iv) payments pursuant to the Tax Sharing
Agreement.
Limitation on Certain Liens
Under the terms of the Senior Debt Indenture, so long as any of the Notes
are Outstanding, the Company shall not create, incur, assume or suffer to exist
any Lien upon or with respect to any of its property of any character, including
without limitation any shares of Capital Stock of Consumers or Enterprises,
without making effective provision whereby the Notes shall be (so long as any
such other creditor shall be so secured) equally and ratably secured. The
foregoing restrictions shall not apply to (a) Liens securing Indebtedness of the
Company, provided that on the date such Liens are created, and after giving
effect to such Indebtedness, the aggregate principal amount at maturity of all
the secured Indebtedness of the Company at such date shall not exceed 5% of
Consolidated Net Tangible Assets or (b) certain liens for taxes, pledges to
secure workman's compensation, other statutory obligations and Support
Obligations, certain materialmen's, mechanic's and similar liens and certain
purchase money liens.
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Limitation on Asset Sales
Under the terms of the Senior Debt Indenture, so long as any of the Notes
are outstanding, the Company may not sell, transfer or otherwise dispose of any
property or assets of the Company, including Capital Stock of any Consolidated
Subsidiary, in one transaction or a series of transactions in an amount which
exceeds $50,000,000 (an "Asset Sale") unless the Company shall (i) apply an
amount equal to such excess Net Cash Proceeds to permanently repay Indebtedness
of a Consolidated Subsidiary or Indebtedness of the Company which is pari passu
with the Notes or (ii) invest an equal amount not so used in clause (i) in
property or assets of related business within 24 months after the date of the
Asset Sale (the "Application Period") or (iii) apply such excess Net Cash
Proceeds not so used in (i) or (ii) (the "Excess Proceeds") to make an offer,
within 30 days after the end of the Application Period, to purchase from the
Holders on a pro rata basis an aggregate principal amount of Notes on the
relevant purchase date equal to the Excess Proceeds on such date, at a purchase
price equal to 100% of the principal amount of the Notes on the relevant
purchase date and unpaid interest, if any, to the purchase date. The Company
shall only be required to make an offer to purchase Notes from Holders pursuant
to subsection (iii) if the Excess Proceeds equal or exceed $25,000,000 at any
given time.
The procedures to be followed by the Company in making an offer to purchase
Notes from the Holders with Excess Proceeds, and for the acceptance of such
offer by the Holders, shall be the same as those set forth above in "Purchase of
Notes Upon Change of Control" with respect to a Change in Control.
Limitation on Consolidation, Merger, Sale or Conveyance
In addition to the terms of the Senior Debt Indenture relating to
consolidations or mergers described in the accompanying Prospectus, so long as
any of the Notes are Outstanding and until the Notes are rated BBB-or above (or
an equivalent rating) by Standard & Poor's and one Other Rating Agency, at which
time the Company will be permanently released from the provisions of this
"Limitation on Consolidation, Merger, Sale or Conveyance" (but not from the
provisions described in the accompanying Prospectus which permit a consolidation
or merger provided that the surviving corporation assumes the obligations of the
Company under the Notes and the Senior Debt Indenture and is organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia), the Company shall not consolidate with or merge into
any other Person or sell, lease or convey the property of the Company in the
entirety or substantially as an entirety, unless (i) immediately after giving
effect to such transaction the Consolidated Net Worth of the surviving entity is
at least equal to the Consolidated Net Worth of the Company immediately prior to
the transaction, and (ii) after giving effect to such transaction, the surviving
entity would be entitled to incur at least one dollar of additional Indebtedness
(other than revolving Indebtedness to banks) pursuant to the first paragraph
under "-- Limitation on Consolidated Indebtedness" below. Notwithstanding the
foregoing provisions, such a transaction may constitute a Change of Control as
described in "-- Purchase of Notes Upon Change in Control" above and give rise
to the right of a Holder to require the Company to repurchase all or part of
such Holder's Notes.
Limitation on Consolidated Indebtedness
Under the terms of the Senior Debt Indenture, so long as any of the Notes
are Outstanding and until the Notes are rated BBB- or above (or an equivalent
rating) by Standard & Poor's and one Other Rating Agency, at which time the
Company will be permanently released from the provisions of this "Limitation on
Consolidated Indebtedness," the Company will not, and will not permit any of its
Consolidated Subsidiaries to, issue, create, assume, guarantee, incur or
otherwise become liable for (collectively, "issue"), directly or indirectly, any
Indebtedness unless the Consolidated Coverage Ratio of the Company and its
Consolidated Subsidiaries for the four consecutive fiscal quarters immediately
preceding the issuance of such Indebtedness (as shown by a pro forma
consolidated income statement of the Company and its Consolidated Subsidiaries
for the four most recent fiscal quarters ending at least 30 days prior to the
issuance of such Indebtedness after giving effect to (i) the issuance of such
Indebtedness and (if applicable) the application of the net proceeds thereof to
refinance other Indebtedness as if such Indebtedness was issued at the beginning
of the period, (ii) the issuance and retirement of any other Indebtedness since
the first day of the period as if such Indebtedness
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was issued or retired at the beginning of the period and (iii) the acquisition
of any company or business acquired by the Company or any Subsidiary since the
first day of the period (including giving effect to the pro forma historical
earnings of such company or business), including any acquisition which will be
consummated contemporaneously with the issuance of such Indebtedness, as if in
each case such acquisition occurred at the beginning of the period) exceeds a
ratio of 1.7 to 1.0.
The foregoing limitation is subject to exceptions for: (i) Indebtedness of
the Company to banks not to exceed $1,000,000,000 in aggregate outstanding
principal amount at any time; (ii) Indebtedness outstanding on the date of the
Supplemental Indenture and certain refinancings thereof; (iii) certain
refinancings and Indebtedness of the Company to a Subsidiary or by a Subsidiary
to the Company; (iv) Indebtedness of a Consolidated Subsidiary issued to
acquire, develop, improve, construct or to provide working capital for a gas,
oil or electric generation, exploration, production, distribution, storage or
transmission facility and related assets provided that such Indebtedness is
without recourse to any assets of the Company, Consumers, Enterprises, CMS
Generation, NOMECO, CMS Electric and Gas, CMS Gas Transmission and Storage, CMS
MST or any other Designated Enterprises Subsidiary; (v) Indebtedness of a Person
existing at the time at which such Person became a Subsidiary and not incurred
in connection with, or in contemplation of, such Person becoming a Subsidiary;
(vi) Indebtedness issued by the Company not to exceed $150,000,000 in aggregate
outstanding principal amount at any time; and (vii) Indebtedness of a
Consolidated Subsidiary in respect of rate reduction bonds issued to recover
electric restructuring transition costs of Consumers provided that such
Indebtedness is without recourse to the assets of Consumers.
CERTAIN DEFINITIONS
Set forth below is a summary of certain defined terms used in the Senior
Debt Indenture. Reference is made to the Senior Debt Indenture for a full
definition of all terms as well as any other capitalized terms used herein and
not otherwise defined.
"Business Day" means a day on which banking institutions in New York, New
York or Detroit, Michigan are not authorized or required by law or regulation to
close.
"Capital Lease Obligation" of a Person means any obligation that is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles; the amount of such obligation shall be the capitalized
amount thereof, determined in accordance with generally accepted accounting
principles; the stated maturity thereof shall be the date of the last payment of
rent or any other amount due under such lease prior to the first date upon which
such lease may be terminated by the lessee without payment of a penalty; and
such obligation shall be deemed secured by a Lien on any property or assets to
which such lease relates.
"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participations or other equivalents of or interests in
(however designated) corporate stock, including any Preferred Stock or letter
stock; provided that Hybrid Preferred Securities are not considered Capital
Stock for purposes of this definition.
"CMS Electric and Gas" means CMS Electric and Gas Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"CMS Gas Transmission and Storage" means CMS Gas Transmission and Storage
Company, a Michigan corporation and wholly-owned subsidiary of Enterprises.
"CMS Generation" means CMS Generation Co., a Michigan corporation and
wholly-owned subsidiary of Enterprises.
"CMS MST" means CMS Marketing, Services and Trading Company, a Michigan
corporation and wholly-owned subsidiary of Enterprises.
"Consolidated Assets" means, at any date of determination, the aggregate
assets of the Company and its Consolidated Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles.
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"Consolidated Coverage Ratio" with respect to any period means the ratio of
(i) the aggregate amount of Operating Cash Flow for such period to (ii) the
aggregate amount of Consolidated Interest Expense for such period.
"Consolidated Current Liabilities" means, for any period, the aggregate
amount of liabilities of the Company and its Consolidated Subsidiaries which may
properly be classified as current liabilities (including taxes accrued as
estimated), after (i) eliminating all inter-company items between the Company
and any Consolidated Subsidiary and (ii) deducting all current maturities of
long-term Indebtedness, all as determined in accordance with generally accepted
accounting principles.
"Consolidated Indebtedness" means, at any date of determination, the
aggregate Indebtedness of the Company and its Consolidated Subsidiaries
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that Consolidated Indebtedness shall not include
any subordinated debt owned by any Hybrid Preferred Securities Subsidiary.
"Consolidated Interest Expense" means, for any period, the total interest
expense in respect of Consolidated Indebtedness of the Company and its
Consolidated Subsidiaries, including, without duplication, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) cash and noncash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of discount) and (vii) interest expense in
respect of obligations of other Persons deemed to be Indebtedness of the Company
or any Consolidated Subsidiaries under clause (v) or (vi) of the definition of
Indebtedness, provided, however, that Consolidated Interest Expense shall
exclude (a) any costs otherwise included in interest expense recognized on early
retirement of debt and (b) any interest expense in respect of any Indebtedness
of any Subsidiary of Consumers, CMS Generation, NOMECO, CMS Electric and Gas,
CMS Gas Transmission and Storage, CMS MST or any other Designated Enterprises
Subsidiary provided that such Indebtedness is without recourse to any assets of
the Company, Consumers, Enterprises, CMS Generation, NOMECO, CMS Electric and
Gas, CMS Gas Transmission and Storage, CMS MST or any other Designated
Enterprises Subsidiary.
"Consolidated Net Income" means, for any period, the net income of the
Company and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles; provided, however,
that there shall not be included in such Consolidated Net Income (i) any net
income of any Person if such Person is not a Subsidiary, except that (A) the
Company's equity in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Person during such period to the Company or a
Consolidated Subsidiary as a dividend or other distribution and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income; (ii) any net income of any
Person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) any gain
or loss realized upon the sale or other disposition of any property, plant or
equipment of the Company or its Consolidated Subsidiaries which is not sold or
otherwise disposed of in the ordinary course of business and any gain or loss
realized upon the sale or other disposition of any Capital Stock of any Person;
and (iv) any net income of any Subsidiary of Consumers, CMS Generation, NOMECO,
CMS Electric and Gas, CMS Gas Transmission and Storage, CMS MST or any other
Designated Enterprises Subsidiary whose interest expense is excluded from
Consolidated Interest Expense, provided, however, that for purposes of this
subsection (iv), any cash, dividends or distributions of any such Subsidiary to
the Company shall be included in calculating Consolidated Net Income.
"Consolidated Net Tangible Assets" means, for any period, the total amount
of assets (less accumulated depreciation or amortization, allowances for
doubtful receivables, other applicable reserves and other properly deductible
items) as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Consolidated Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles, and after giving effect to purchase accounting and after
deducting therefrom, to the extent otherwise included, the amounts of: (i)
Consolidated Current Liabilities; (ii) minority interests in Consolidated
Subsidiaries held by Persons other than the Company or a Restricted
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Subsidiary; (iii) excess of cost over fair value of assets of businesses
acquired, as determined in good faith by the Board of Directors as evidenced by
Board resolutions; (iv) any revaluation or other write-up in value of assets
subsequent to December 31, 1996, as a result of a change in the method of
valuation in accordance with generally accepted accounting principles; (v)
unamortized debt discount and expenses and other unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights, licenses
organization or developmental expenses and other intangible items; (vi) treasury
stock; and (vii) any cash set apart and held in a sinking or other analogous
fund established for the purpose of redemption or other retirement of Capital
Stock to the extent such obligation is not reflected in Consolidated Current
Liabilities.
"Consolidated Net Worth" of any Person means the total of the amounts shown
on the consolidated balance sheet of such Person and its consolidated
subsidiaries, determined on a consolidated basis in accordance with generally
accepted accounting principles, as of any date selected by such Person not more
than 90 days prior to the taking of any action for the purpose of which the
determination is being made (and adjusted for any material events since such
date), as (i) the par or stated value of all outstanding Capital Stock plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit, (B) any
amounts attributable to Redeemable Stock and (C) any amounts attributable to
Exchangeable Stock.
"Consolidated Subsidiary" means, any Subsidiary whose accounts are or are
required to be consolidated with the accounts of the Company in accordance with
generally accepted accounting principles.
"Consumers" means Consumers Energy Company, a Michigan corporation, all of
whose common stock is on the date hereof owned by the Company.
"Designated Enterprises Subsidiary" means any wholly-owned subsidiary of
Enterprises formed after the date of the Supplemental Indenture which is
designated a Designated Enterprises Subsidiary by the Board of Directors.
"Enterprises" means CMS Enterprises Company, a Michigan corporation and
wholly-owned subsidiary of the Company.
"Exchangeable Stock" means any Capital Stock of a corporation that is
exchangeable or convertible into another security (other than Capital Stock of
such corporation that is neither Exchangeable Stock nor Redeemable Stock).
"Holder" means the Person in whose name a Note is registered in the
security register kept by the Company for that purpose.
"Hybrid Preferred Securities" means any preferred securities issued by a
Hybrid Preferred Securities Subsidiary, where such preferred securities have the
following characteristics: (i) such Hybrid Preferred Securities Subsidiary lends
substantially all of the proceeds from the issuance of such preferred securities
to the Company or Consumers in exchange for subordinated debt issued by the
Company or Consumers, respectively; (ii) such preferred securities contain terms
providing for the deferral of distributions corresponding to provisions
providing for the deferral of interest payments on such subordinated debt; and
(iii) the Company or Consumers (as the case may be) makes periodic interest
payments on such subordinated debt, which interest payments are in turn used by
the Hybrid Preferred Securities Subsidiary to make corresponding payments to the
holders of the Hybrid Preferred Securities.
"Hybrid Preferred Securities Subsidiary" means any business trust (or
similar entity) (i) all of the common equity interest of which is owned (either
directly or indirectly through one or more wholly-owned Subsidiaries of the
Company or Consumers) at all times by the Company or Consumers, (ii) that has
been formed for the purpose of issuing Hybrid Preferred Securities and (iii)
substantially all of the assets of which consist at all times solely of
subordinated debt issued by the Company or Consumers (as the case may be) and
payments made from time to time on such subordinated debt.
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable;
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(ii) all Capital Lease Obligations of such Person; (iii) all obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all obligations under any title retention
agreement (but excluding trade accounts payable arising in the ordinary course
of business); (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, bankers' acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to the
extent such letters of credit are not drawn upon or, if and to the extent drawn
upon, such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) all obligations of the type referred to in clauses (i)
through (iv) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable as obligor,
guarantor or otherwise; and (vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such Person),
the amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured.
"Lien" means any lien, mortgage, pledge, security interest, conditional
sale, title retention agreement or other charge or encumbrance of any kind.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
aggregate proceeds of such Asset Sale including the fair market value (as
determined by the Board of Directors and net of any associated debt and of any
consideration other than Capital Stock received in return) of property other
than cash, received by the Company, net of (i) brokerage commissions and other
fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with generally accepted accounting principles and (b) with respect to any
issuance or sale or contribution in respect of Capital Stock, the aggregate
proceeds of such issuance, sale or contribution, including the fair market value
(as determined by the Board of Directors and net of any associated debt and of
any consideration other than Capital Stock received in return) of property other
than cash, received by the Company, net of attorneys' fees, accountants' fees,
underwriters' or placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or sale and
net of taxes paid or payable as a result thereof, provided, however, that if
such fair market value as determined by the Board of Directors of property other
than cash is greater than $25 million, the value thereof shall be based upon an
opinion from an independent nationally recognized firm experienced in the
appraisal or similar review of similar types of transactions.
"NOMECO" means, CMS NOMECO Oil & Gas Co., a Michigan corporation and
wholly-owned subsidiary of the Company.
"Non-Convertible Capital Stock" means, with respect to any corporation, any
non-convertible Capital Stock of such corporation and any Capital Stock of such
corporation convertible solely into non-convertible Capital Stock other than
Preferred Stock of such corporation; provided, however, that Non-Convertible
Capital Stock shall not include any Redeemable Stock or Exchangeable Stock.
"Other Rating Agency" shall mean any one of Duff & Phelps Credit Rating
Co., Fitch Investors Service, L.P. or Moody's Investors Service, Inc., and any
successor to any of these organizations which is a nationally recognized
statistical rating organization.
"Operating Cash Flow" means, for any period, with respect to the Company
and its Consolidated Subsidiaries, the aggregate amount of Consolidated Net
Income after adding thereto Consolidated Interest Expense (adjusted to include
costs recognized on early retirement of debt), income taxes, depreciation
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expense, Amortization Expense and any noncash amortization of debt issuance
costs, any nonrecurring, noncash charges to earnings and any negative accretion
recognition.
"Paying Agent" means any person authorized by the Company to pay the
principal of (and premium, if any) or interest on any of the Notes on behalf of
the Company. Initially, the Paying Agent is the Senior Debt Trustee (as defined
in the accompanying Prospectus).
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) that is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation; provided that Hybrid Preferred Securities are not considered
Preferred Stock for purposes of this definition.
"Redeemable Stock" means any Capital Stock that by its terms or otherwise
is required to be redeemed prior to the first anniversary of the stated maturity
of the Outstanding Notes or is redeemable at the option of the holder thereof at
any time prior to the first anniversary of the stated maturity of the
Outstanding Notes.
"Restricted Subsidiary" means any Subsidiary (other than Consumers and its
subsidiaries) of the Company which, as of the date of the Company's most recent
quarterly consolidated balance sheet, constituted at least 10% of the total
Consolidated Assets of the Company and its Consolidated Subsidiaries and any
other Subsidiary which from time to time is designated a Restricted Subsidiary
by the Board of Directors provided that no Subsidiary may be designated a
Restricted Subsidiary if, immediately after giving effect thereto, an Event of
Default or event that, with the lapse of time or giving of notice or both, would
constitute an Event of Default would exist or the Company and its Restricted
Subsidiaries could not incur at least one dollar of additional Indebtedness
pursuant to the first paragraph under "Description of the Notes Limitation on
Consolidated Indebtedness," and (i) any such Subsidiary so designated as a
Restricted Subsidiary must be organized under the laws of the United States or
any State thereof, (ii) more than 80% of the Voting Stock of such Subsidiary
must be owned of record and beneficially by the Company or a Restricted
Subsidiary and (iii) such Restricted Subsidiary must be a Consolidated
Subsidiary.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a division
of McGraw Hill Inc., and any successor thereto which is a nationally recognized
statistical rating organization, or if such entity shall cease to rate the Notes
or shall cease to exist and there shall be no such successor thereto, any other
nationally recognized statistical rating organization selected by the Company
which is acceptable to the Senior Debt Trustee.
"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the date of the Supplemental Indenture or thereafter incurred)
which is contractually subordinated or junior in right of payment to the Notes.
"Subsidiary" means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For the purposes of this definition, "voting stock" means stock which ordinarily
has voting power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
"Support Obligations" means, for any person, without duplication, any
financial obligation, contingent or otherwise, of such person guaranteeing or
otherwise supporting any debt or other obligation of any other person in any
manner, whether directly or indirectly, and including, without limitation, any
obligation of such person, direct or indirect, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such debt or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such debt, (ii) to purchase property, securities or services for the purpose
of assuring the owner of such debt of the payment of such debt, (iii) to
maintain working capital, equity capital, available cash or other financial
statement condition of the primary obligor so as to enable the primary obligor
to pay such debt, (iv) to provide equity capital under or in respect of equity
subscription arrangements (to the extent that such obligation to provide equity
capital does not otherwise constitute debt), or (v) to perform, or arrange for
the performance of, any non-monetary obligations or non-funded debt payment
obligations of the primary obligor.
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<PAGE> 17
"Tax-Sharing Agreement" means the Amended and Restated Agreement for the
Allocation of Income Tax Liabilities and Benefits, dated January 1, 1994, as
amended or supplemented from time to time, by and among the Company, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"Voting Stock" means securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to vote for
corporate directors (or persons performing similar functions).
EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the Notes
will constitute an "Event of Default" with respect to the Notes: (a) default for
30 days in the payment of any interest on any of the Notes; (b) default in the
payment when due of any of the principal of or the premium, if any, on any of
the Notes, whether at maturity, upon redemption, acceleration, purchase by the
Company at the option of the Holders or otherwise; (c) default for 60 days by
the Company in the observance or performance of any other covenant or agreement
contained in the Senior Debt Indenture relating to the Notes after written
notice thereof as provided in the Senior Debt Indenture; (d) certain events of
bankruptcy, insolvency or reorganization relating to the Company or Consumers;
(e) entry of final judgments against the Company or Consumers aggregating in
excess of $25,000,000 which remain undischarged or unbonded for 60 days; or (g)
a default resulting in the acceleration of indebtedness of the Company or
Consumers in excess of $25,000,000, which acceleration has not been rescinded or
annulled within 10 days after written notice of such default as provided in the
Senior Debt Indenture.
If an Event of Default on the Notes shall have occurred and be continuing,
either the Senior Debt Trustee or the Holders of not less than 25% in aggregate
principal amount of the Notes then Outstanding may declare the principal of all
the Notes and the premium thereon and interest, if any, accrued thereon to be
due and payable immediately.
The Senior Debt Indenture provides that the Senior Debt Trustee will be
under no obligation to exercise any of its rights or powers under the Senior
Debt Indenture at the request, order or direction of the Holders of the Notes,
unless such Holders shall have offered to the Senior Debt Trustee reasonable
indemnity. Subject to such provisions for indemnity and certain other
limitations contained in the Senior Debt Indenture, the Holders of a majority in
aggregate principal amount of the Senior Debt Securities of each affected series
then Outstanding (voting as one class) will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Senior Debt Trustee, or exercising any trust or power conferred on the Senior
Debt Trustee, with respect to the Senior Debt Securities of such affected
series.
The Senior Debt Indenture provides that no Holder of Notes may institute
any action against the Company under the Senior Debt Indenture (except actions
for payment of overdue principal, premium or interest) unless such Holder
previously shall have given to the Senior Debt Trustee written notice of default
and continuance thereof and unless the Holders of not less than 25% in aggregate
principal amount of Senior Debt Securities of the affected series then
Outstanding (voting as one class) shall have requested the Senior Debt Trustee
to institute such action and shall have offered the Senior Debt Trustee
reasonable indemnity, the Senior Debt Trustee shall not have instituted such
action within 60 days of such request and the Senior Debt Trustee shall not have
received direction inconsistent with such request by the Holders of a majority
in aggregate principal amount of the Senior Debt Securities of the affected
series then Outstanding (voting as one class).
The Senior Debt Indenture requires the Company to furnish to the Senior
Debt Trustee annually a statement as to the Company's compliance with all
conditions and covenants under the Senior Debt Indenture. The Senior Debt
Indenture provides that the Senior Debt Trustee may withhold notice to the
Holders of the Notes of any default affecting such Notes (except defaults as to
payment of principal, premium or interest on the Notes) if it considers such
withholding to be in the interests of the Holders of the Notes.
S-17
<PAGE> 18
BOOK-ENTRY SYSTEM
The Notes will be issued initially in the form of one or more Global Notes
that will be deposited with, or on behalf of, The Depository Trust Company, New
York, New York ("DTC"), which will act as securities depository for the Notes.
The Notes will be issued as fully-registered securities registered in the name
of Cede & Co. (DTC's nominee). DTC and any other depository which may replace
DTC as depository for the Notes are sometimes referred to herein as the
"Depository." Except under the limited circumstances described below, Notes
represented by Global Notes will not be exchangeable for Certificated Notes.
So long as the Depository, or its nominee, is the registered owner of a
Global Note, such Depository or such nominee, as the case may be, will be
considered the sole registered holder of the individual Notes represented by
such Global Note for all purposes under the Senior Debt Indenture. Payments of
principal of and premium, if any, and any interest on individual Notes
represented by a Global Note will be made to the Depository or its nominee, as
the case may be, as the registered holder of such Global Note. Except as set
forth below, owners of beneficial interests in a Global Note will not be
entitled to have any of the individual Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of any such Note and will not be considered the registered holder
thereof under the Senior Debt Indenture, including, without limitation, for
purposes of consenting to any amendment thereof or supplement thereto as
described in the accompanying Prospectus.
The following is based upon information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants ("Direct
Participants") include securities brokers and dealers, banks, trust
companies, clearing corporations, and certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc., and the NASD. Access to
the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a
custodial relationship with a Direct Participant, either directly or
indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Notes under the DTC system must be made by or through
Direct Participants, which will receive a credit for the Notes on DTC's
records. The ownership interest of each actual purchaser of each Note
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchase, but Beneficial Owners are expected
to receive written confirmations providing details of the transaction, as
well as periodic statements of their holdings, from the Direct or Indirect
Participant through which the Beneficial Owner entered into the
transaction. Transfers of ownership interests in the Notes are to be
accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners will not receive certificates
representing their ownership interests in Notes, except in the event that
use of the book-entry system for one or more Notes is discontinued.
To facilitate subsequent transfers, all Global Notes deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Global Notes with DTC and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the
Notes; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Notes are credited, which may or may not be the
Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
S-18
<PAGE> 19
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to Notes.
Under its usual procedures, DTC mails an Omnibus Proxy to the Company as
soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Notes are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Principal and interest payments on the Notes will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the payable
date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payment on the
payable date. Payments by Participants to Beneficial Owners will be
governed by standing instructions and customary practices, as is the case
with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such
Participant and not of DTC, any Agents, or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal and interest to DTC is the responsibility of the
Company, disbursement of such payments to Direct Participants shall be the
responsibility of DTC, and disbursement of such payments to the Beneficial
Owners shall be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Notes at any time by giving 90 days' notice to the
Company or the Senior Debt Trustee. Under such circumstances, in the event
that a successor securities depository is not obtained, Certificated Notes
are required to be printed and delivered in exchange for the Notes
represented by the Global Notes held by the DTC. See "Certificated Notes."
In addition, the Company may decide to discontinue use of the system
of book-entry transfers through DTC (or a successor securities depository).
In that event, Certificated Notes will be printed and delivered in exchange
for the Notes represented by the Global Notes held by DTC. See
"Certificated Notes."
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC. The Company believes such information to be
reliable, but the Company takes no responsibility for the accuracy thereof.
None of the Company, the Underwriters, the Senior Debt Trustee, any paying
agent or the registrar for the Notes will have any responsibility or liability
for any aspect of the records relating to or payments made on account of
beneficial ownership interests in a Global Note or for maintaining, supervising
or reviewing any records relating to such beneficial ownership interests.
CERTIFICATED NOTES
If the Depository is at any time unwilling or unable to continue as
depository and a successor depository is not appointed by the Company by the
earlier of (i) 90 days from the date the Company receives notice to the effect
that the Depository is unwilling or unable to act, or the Company determines
that the Depository is unable to act or (ii) the effectiveness of the
Depository's resignation or failure to fulfill its duties as Depository, the
Company will issue Certificated Notes in exchange for the Notes represented by
the Global Notes held by the Depository. Further, within seven days after the
occurrence of an Event of Default described in clauses (a), (b) or (c) under
"Description of Debt Securities -- Senior Debt Securities -- Events of Default"
in the accompanying Prospectus, the Company will issue Certificated Notes in
exchange for Notes represented by a Global Note. In addition, the Company may at
any time and in its sole discretion determine not to have Notes represented by a
Global Note and, in such event, will issue individual Certificated Notes in
exchange for the Notes represented by the Global Note. (Senior Debt Indenture
Section 2.8) In any such instance, the owner of a beneficial interest in a Note
represented by a Global Note will be entitled to have such Notes registered in
its name and will be entitled to physical delivery of such Note in
S-19
<PAGE> 20
certificated form. Individual Certificated Notes so issued will be issued in
fully registered form, without coupons, in one or more authorized denominations
as described above under "General."
Certificated Notes will be exchangeable for other Certificated Notes of any
authorized denominations and of a like aggregate principal amount and tenor.
Certificated Notes may be presented for exchange as provided above, and may
be presented for registration of transfer (duly endorsed, or accompanied by a
duly executed written instrument of transfer), at the office of the Senior Debt
Trustee, in Detroit, Michigan (the "Security Registrar"). The Security Registrar
will not charge a service charge for any registration of transfer or exchange of
Notes; however, the Company may require payment by a Holder of a sum sufficient
to cover any tax, assessment or other governmental charge payable in connection
therewith, as described in the Senior Debt Indenture. Such transfer or exchange
will be effected upon the Security Registrar or such other transfer agent, as
the case may be, being satisfied with the documents of title and identity of the
person making the request. The Company may at any time designate additional
transfer agents with respect to the Notes.
The Company shall not be required to (a) issue, exchange or register the
transfer of any Certificated Note for a period of 15 days next preceding the
mailing of notice of redemption of such Note or (b) exchange or register the
transfer of any Certificated Note or portion thereof selected, called or being
called for redemption, except in the case of any Certificated Note to be
redeemed in part, the portion thereof not so to be redeemed.
If a Certificated Note is mutilated, destroyed, lost or stolen, it may be
replaced at the office of the Security Registrar upon payment by the Holder of
such expenses as may be incurred by the Company and the Security Registrar in
connection therewith and the furnishing of such evidence and indemnity as the
Company and the Security Registrar may require. Mutilated Notes must be
surrendered before new Notes will be issued. (Senior Debt Indenture Section
2.9).
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters") have severally agreed to purchase, and the
Company has agreed to sell to them, the respective principal amounts of the
Notes set forth opposite their names below:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NAME NOTES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated........................... $ 54,000,000
Chase Securities Inc........................................ 31,500,000
CIBC Wood Gundy Securities Corp............................. 31,500,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 31,500,000
Salomon Brothers Inc........................................ 31,500,000
------------
Total.................................................. $180,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to approval
of certain legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all the Notes if any are taken,
provided that, under certain circumstances relating to a default of one or more
Underwriters, less than all of the Notes may be purchased. Default by one or
more Underwriters would not relieve the non-defaulting Underwriters from their
several obligations, and in the event of such default, the Company would have
the right to require the non-defaulting Underwriters to purchase the respective
principal amount of Notes which they have severally agreed to purchase and, in
addition, to purchase Notes which the defaulting Underwriter or Underwriters
shall have so failed to purchase up to a principal amount thereof equal to
one-ninth of the
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<PAGE> 21
respective principal amounts of Notes which such non-defaulting Underwriters
have otherwise agreed to purchase.
The Underwriters initially propose to offer part of the Notes directly to
the public at the public offering price set forth on the cover page of this
Prospectus Supplement and part to certain dealers at prices that represent
concessions not to exceed 0.250% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, concessions not to exceed
0.125% of the principal amount of the Notes to certain other dealers. After the
initial offering of the Notes, the offering price and other selling terms may be
varied from time to time by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Notes are a new issue of securities with no established trading market.
The Company does not intend to apply for listing the Notes on any securities
exchange or for quotation through any inter-dealer quotation system. The Company
has been advised by the Underwriters that they presently intend to make a market
in the Notes as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in any of the Notes and any such
market making may be discontinued at any time without notice at the discretion
of the Underwriters. No assurances can be given as to the liquidity of, or the
trading market for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Notes. Specifically, the Underwriters may overallot in connection with the
offering, creating a short position in the Notes for their own account. In
addition, to cover overallotments or to stabilize the price of the Notes, the
Underwriters may bid for, and purchase, the Notes in the open market. Finally,
the underwriting syndicate may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Notes in the offering, if the
syndicate repurchases previously distributed Notes in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Each of Morgan Stanley & Co. Incorporated, Chase Securities Inc., CIBC Wood
Gundy Securities Corp., Donaldson, Lufkin & Jenrette Securities Corporation and
Salomon Brothers Inc and certain of their respective affiliates have provided,
and may continue to provide, investment banking services to the Company. In
addition, affiliates of Chase Securities Inc. and CIBC Wood Gundy Securities
Corp. are lenders to, and in the ordinary course of business engage in various
general financing and banking transactions with, the Company and its affiliates.
LEGAL OPINIONS
Opinions as to the legality of the Notes will be rendered for the Company
by Michael D. VanHemert, Assistant General Counsel for the Company. Certain
legal matters with respect to the Notes will be passed upon by Reid & Priest
LLP, New York, N.Y., counsel for the Underwriters. Reid & Priest LLP provides
legal services to an affiliate of the Company and has, from time to time,
provided legal services to the Company.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
S-21
<PAGE> 22
With respect to the unaudited interim consolidated financial information
for the periods ended March 31 and June 30, 1997 and 1996, Arthur Andersen LLP
has applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports thereon state that
they did not audit and they did not express an opinion on that interim
consolidated financial information. Accordingly, the degree of reliance on their
reports on that information should be restricted in light of the limited nature
of the review procedures applied. In addition, the accountants are not subject
to the liability provisions of Section 11 of the Securities Act, for their
reports on the unaudited interim consolidated financial information because
those reports are not a "report" or "part" of the registration statement
prepared or certified by the accountants within the meaning of Sections 7 and 11
of the Securities Act.
Future consolidated financial statements of the Company and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
S-22
<PAGE> 23
PROSPECTUS
$500,000,000
CMS ENERGY CORPORATION
Senior Debt Securities
Subordinated Debt Securities
------------------------
CMS Energy Corporation, a Michigan corporation ("CMS Energy"), may offer,
from time to time, up to $500,000,000 aggregate principal amount of its (i)
unsecured senior debt securities (the "Senior Debt Securities") consisting of
debentures, notes or other unsecured evidence of indebtedness, (ii) unsecured
subordinated debt securities (the "Subordinated Debt Securities," and together
with Senior Debt Securities, the "Debt Securities") consisting of debentures,
notes and other unsecured evidence of indebtedness, or any combination of the
foregoing, in each case in amounts, at prices and on terms to be determined at
or prior to the time of sale. See "Description of Securities."
As of September 30, 1996, CMS Energy had outstanding approximately
$1,720,382,319 aggregate principal amount of indebtedness, none of which was
secured. None of such indebtedness would be senior to any Senior Debt Securities
which may be issued. All of such indebtedness would be senior to any
Subordinated Debt Securities which may be issued. The indenture, as
supplemented, pursuant to which the Senior Debt Securities will be issued,
contains certain limitations on the issuance of additional debt by CMS Energy,
but indebtedness issued within such limitations could be secured and therefore
senior to unsecured Senior Debt Securities. The indenture pursuant to which the
Subordinated Debt Securities will be issued contains no limitation on the
issuance of indebtedness ranking senior to the Subordinated Debt Securities.
Specific terms of the particular Debt Securities in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in an
accompanying Prospectus Supplement or Supplements, together with the terms of
the offering of the Offered Securities, the initial price thereof and the net
proceeds from the sale thereof. Each Prospectus Supplement will set forth with
regard to the particular Offered Securities, without limitation, the
designation, aggregate principal amount, denomination, maturity, any exchange,
conversion, redemption or sinking fund provisions, provisions for redemption at
the option of the holder, interest rate (which may be fixed or variable), the
time and method of calculating interest payments, the right of CMS Energy, if
any, to defer payment of interest on the Offered Securities and the maximum
length of such deferral period, any listing on a securities exchange and other
specific terms of the offering.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CMS Energy intends to sell the Offered Securities through underwriters,
dealers, agents or directly to a limited number of purchasers. The names of, and
the Offered Securities to be purchased by, or through, underwriters, dealers or
agents, if any, the compensation of such persons and other special terms in
connection with the offering and sale of such Offered Securities will be set
forth in the related Prospectus Supplement. See "Plan of Distribution" herein.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
------------------------
The date of this Prospectus is December 13, 1996.
<PAGE> 24
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, AND ANY INFORMATION
OR REPRESENTATION NOT CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY CMS ENERGY OR ANY UNDERWRITER, DEALER OR AGENT.
THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH THEY RELATE OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED OR INCORPORATED HEREIN OR THEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
CMS Energy is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Information, as of particular dates, concerning
CMS Energy's directors and officers, their remuneration, the principal holders
of CMS Energy's securities and any material interest of such persons in
transactions with CMS Energy is disclosed in proxy statements distributed to
shareholders of CMS Energy and filed with the Commission. Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at 500 West Madison Street, 14th Floor, Chicago, Illinois 60661 and at
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
materials can be obtained by mail from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a web site (http://www.sec.gov) that
contains reports, proxy statements and other information regarding CMS Energy.
The outstanding shares of CMS Energy Common Stock (as defined herein) are listed
on the New York Stock Exchange (the "NYSE") and reports, proxy statements and
other information concerning CMS Energy may also be inspected and copied at the
offices of such exchange at 20 Broad Street, New York, New York 10005.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by CMS Energy with the Commission (File No.
1-9513) pursuant to the Exchange Act are hereby incorporated by reference in
this Prospectus and shall be deemed to be a part hereof: (i) CMS Energy's Annual
Report on Form 10-K for the year ended December 31, 1995; (ii) CMS Energy's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, June
30, and September 30, 1996; and (iii) CMS Energy's Current Reports on Form 8-K
dated February 23, April 23, and November 15, 1996; and (iv) the description of
the CMS Energy Common Stock contained in CMS Energy's Amendment No. 1 to
Registration Statement on Form 8-B dated May 6, 1987, as amended by Amendment
No. 1 thereto filed November 22, 1996 ("8-B Registration Statement").
All documents subsequently filed by CMS Energy pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
made by this Prospectus (the "Offering") shall be deemed to be incorporated by
reference herein and shall be deemed to be a part hereof from the date of filing
of such documents (such documents, and the documents enumerated above, being
hereinafter referred to as "Incorporated Documents"). Any statement contained in
an Incorporated Document shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained herein or
in any other subsequently filed Incorporated Document modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
CMS Energy undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, upon
the written or oral request of any such person, a copy
2
<PAGE> 25
of any and all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to CMS Energy at
its principal executive offices located at Fairlane Plaza South, Suite 1100, 330
Town Center Drive, Dearborn, Michigan 48126, Attention: Office of the Secretary,
telephone: (313) 436-9200.
Certain information contained in this Prospectus summarizes, is based upon,
or refers to information and financial statements contained in one or more
Incorporated Documents; accordingly, such information contained herein is
qualified in its entirety by reference to such documents and should be read in
conjunction therewith.
------------------------
CMS ENERGY
CMS Energy, incorporated in 1987, is the parent holding company of
Consumers Power Company ("Consumers") and CMS Enterprises Company
("Enterprises"). Consumers, a combination electric and gas utility company
serving all of Michigan's Lower Peninsula, is the largest subsidiary of CMS
Energy. Consumers' customer base includes a mix of residential, commercial and
diversified industrial customers, the largest of which is the automotive
industry. Enterprises is engaged in several energy-related businesses including:
(i) oil and gas exploration and production, (ii) development and operation of
independent power production facilities, (iii) marketing gas to utility,
commercial and industrial customers and (iv) transmission, storage and
processing of natural gas.
CMS Energy conducts its principal operations through the following five
business segments: (i) electric utility operations; (ii) gas utility operations;
(iii) oil and gas exploration and production operations; (iv) independent power
production; and (v) gas marketing, transmission, storage and processing.
Consumers or Consumers' subsidiaries are engaged in two segments: electric
operations and gas operations. Consumers' electric and gas businesses are
principally regulated utility operations. CMS Energy and its subsidiaries
routinely evaluate, invest in and acquire energy-related assets and/or companies
both domestically and internationally. Consideration for such transactions may
involve the delivery of cash or securities.
CMS Energy's 1995 consolidated operating revenue was $3,890 million. This
consolidated operating revenue was derived from its electric utility operations
(approximately 59% or $2,277 million), its gas utility operations (approximately
31% or $1,195 million), gas transmission, storage and marketing (approximately
5% or $196 million), oil and gas exploration and production activities
(approximately 3% or $108 million) and independent power production and other
non-utility activities (approximately 2% or $96 million). Consumers'
consolidated operations in the electric and gas utility businesses account for
the major share of CMS Energy's total assets, revenue and income. The
unconsolidated share of non-utility electric generation and gas transmission and
storage revenue for 1995 was $523 million.
Consumers is a public utility serving gas or electricity to almost six
million of Michigan's nine million residents in all of the 68 counties in
Michigan's Lower Peninsula. Industries in Consumers' service area include
automotive, metal, chemical, food and wood products and a diversified group of
other industries. Consumers' 1995 consolidated operating revenue of $3,511
million was derived approximately 65% ($2,277 million) from its electric utility
business and approximately 34% ($1,195 million) from its gas utility business.
Consumers' rates and certain other aspects of its business are subject to the
jurisdiction of the Michigan Public Service Commission and the Federal Energy
Regulatory Commission.
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<PAGE> 26
USE OF PROCEEDS
As will be more specifically set forth in the applicable Prospectus
Supplement, CMS Energy will use the net proceeds from the sale of the Debt
Securities offered hereby to invest in the businesses of CMS Energy and for its
general corporate purposes. Initially, the net proceeds may be used to refund or
refinance a portion of CMS Energy's Series A General Term Notes(R) maturing from
April through December 1997 at interest rates ranging from 6.75% to 8.5%; Series
A Senior Deferred Coupon Notes maturing October 1, 1997 at an interest rate of
9.5%; and Series B Senior Deferred Coupon Notes callable on October 1, 1997 at a
premium to the principal amount and at an interest rate of 9.875%.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for the nine months ended September
30, 1996 and for each of the years ended December 31, 1991 through 1995 are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------
SEPTEMBER 30, 1996 1995 1994 1993 1992 1991
------------------ ---- ---- ---- ---- ----
(1) (2)(3)
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges.......... 2.23 2.00 2.12 1.92 -- --
</TABLE>
- -------------------------
(1) For the year ended December 31, 1992, fixed charges exceeded earnings by
$441 million. Earnings as defined include a $520 million pretax loss on the
settlement of MCV power purchases, $(15) million for potential customer
refunds and other reserves related to 1992 but recorded in 1991, and $6
million relating to CMS Generation Company's reduction in its investment in
The Oxford Energy Company. The ratio of earnings to fixed charges would have
been 1.34, excluding these amounts.
(2) Excludes an extraordinary after-tax loss of $14 million.
(3) For the year ended December 31, 1991, fixed charges exceeded earnings by
$356 million. Earnings as defined include pretax losses of $398 million for
write-downs and reserve amounts related to Consumers' abandonment of the
construction of a nuclear generating station in Midland, Michigan, $76
million for potential customer refunds and other reserves, and $51 million
relating to CMS Generation Company's reduction in its investment in The
Oxford Energy Company. The ratio of earnings to fixed charges would have
been 1.48, excluding these amounts.
For the purpose of computing such ratios, earnings represent net income
before income taxes, net interest charges and the estimated interest portion of
lease rentals.
DESCRIPTION OF DEBT SECURITIES
The Senior Debt Securities will be issued under an Indenture dated as of
September 15, 1992, as amended and supplemented (the "Senior Debt Indenture"),
between CMS Energy and NBD Bank, as Trustee (the "Senior Debt Trustee"), and the
Subordinated Debt Securities will be issued under an Indenture (the
"Subordinated Debt Indenture"), between CMS Energy and The Bank of New York, as
Trustee (the "Subordinated Debt Trustee"). The descriptions of the provisions of
the Debt Securities, the Senior Debt Indenture and the Subordinated Debt
Indenture contained herein are brief summaries of such provisions and do not
purport to be complete. The forms of the Senior Debt Indenture and the
Subordinated Debt Indenture are filed as exhibits to the Registration Statement
of which this Prospectus is a part, and reference is made thereto for the
respective definitive provisions of such Indentures. The descriptions herein are
qualified in their entirety by such reference. Certain capitalized terms used
herein shall have the meanings respectively set forth in the respective
Indentures. Section references below are references to sections of the
respective Senior Debt Indenture and Subordinated Debt Indenture.
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<PAGE> 27
GENERAL
CMS Energy will offer under this Prospectus unsecured Debt Securities, any
of which may be issued as: (a) Senior Debt Securities or (b) Subordinated Debt
Securities. The terms of any Debt Securities may or may not restrict the
issuance by CMS Energy or its subsidiaries of additional indebtedness which is
secured, unsecured, senior, pari passu or subordinated to such Debt Securities.
CMS Energy is a holding company and its assets consist primarily of
investments in its subsidiaries. The Debt Securities will be obligations
exclusively of CMS Energy. CMS Energy's ability to service its indebtedness,
including the Debt Securities, is dependent primarily upon the earnings of its
subsidiaries and the distribution or other payment of such earnings to CMS
Energy in the form of dividends, loans or advances, and repayment of loans and
advances from CMS Energy. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Debt Securities or to make any funds available therefor, whether
by dividends, loans or other payments.
A substantial portion of the consolidated liabilities of CMS Energy have
been incurred by its subsidiaries. Therefore, CMS Energy's rights and the rights
of its creditors, including holders of Debt Securities, to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent that CMS Energy may itself be a
creditor with recognized claims against the subsidiary (in which case the claims
of CMS Energy would still be subject to the prior claims of any secured creditor
of such subsidiary and of any holder of indebtedness of such subsidiary that is
senior to that held by CMS Energy). As of September 30, 1996, CMS Energy's
subsidiaries had total indebtedness for borrowed money (excluding intercompany
indebtedness) of approximately $2,210 million.
The applicable Prospectus Supplement will set forth the following terms
relating to the Offered Securities: (1) the specific designation of the Offered
Securities and whether such Offered Securities are Senior Debt Securities or
Subordinated Debt Securities; (2) any limit on the aggregate principal amount of
the Offered Securities; (3) the date or dates, if any (and whether fixed or
extendible), on which the Offered Securities will mature; (4) the rate or rates
per annum (which may be fixed or variable) at which the Offered Securities will
bear interest, if any, the date or dates on which any such interest will be
payable and the regular record dates for any interest payable on the Offered
Securities; (5) the place or places where the principal of and any interest on
the Offered Securities shall be payable and where such Offered Securities may be
surrendered for registration of transfer or exchange; (6) any provisions
relating to the issuance of the Offered Securities at an original issue
discount; (7) the option, if any, of CMS Energy to redeem the Offered Securities
and the periods within which or the dates on which, the prices at which and the
terms and conditions upon which, such Offered Securities may be redeemed, in
whole or in part, upon the exercise of such option; (8) the obligation, if any,
of CMS Energy to redeem such Offered Securities pursuant to any sinking fund or
other mandatory redemption provisions or at the option of the holder and the
periods within which or the dates on which, the prices at which and the terms
and conditions upon which such Offered Securities will be redeemed, in whole or
in part, pursuant to such obligation; (9) the obligation, if any, of CMS Energy
to permit the conversion of the Offered Securities into CMS Energy Common Stock,
and the terms and conditions upon which such conversion shall be effected; (10)
the denominations in which such Offered Securities will be issued and whether
the Offered Securities will be issuable in registered form or bearer form or
both, and, if issuable in bearer form, the restrictions as to the offer, sale
and delivery of the Offered Securities in bearer form and as to exchanges
between registered and bearer form; (11) whether the Offered Securities will be
issuable in the form of one or more temporary or permanent global securities
and, if so, the identity of the depository for such global securities; (12)
whether and under what circumstances CMS Energy will pay additional amounts with
respect to the Offered Securities to a non-United States Person (as defined in
such Prospectus Supplement) on account of any tax, assessment or governmental
charge withheld or deducted and, if so, whether CMS Energy will have the option
to redeem such Offered Securities rather than pay such additional amounts; and
(13) any other terms of the Offered Securities not inconsistent with the related
Indenture, including covenants and events of default relating solely to the
Offered Securities. Debt Securities may be issued at a substantial discount from
the stated principal amount thereof ("Original Issue Discount Securities").
United States federal income tax consequences and other special considerations
5
<PAGE> 28
applicable thereto or to other Offered Securities offered and sold at par which
are treated as having been issued at a discount for United States federal income
tax purposes will be described in the Prospectus Supplement relating thereto.
Concerning the Trustees
Each of NBD Bank, the Trustee under the Senior Debt Indenture, and The Bank
of New York, the Trustee under the Subordinated Debt Indenture, is one of a
number of banks with which CMS Energy and its subsidiaries maintain ordinary
banking relationships, including credit facilities.
Senior Debt Securities
General. The Senior Debt Securities will be issuable under the Senior Debt
Indenture. The Senior Debt Indenture does not limit the aggregate principal
amount of Senior Debt Securities which may be issued thereunder. Senior Debt
Securities may be issued under the Senior Debt Indenture from time to time in
one or more series. The Senior Debt Securities shall mature on a date not less
than nine months nor more than 40 years after the date of issuance. (Section
2.3) Capitalized terms used in this section "Senior Debt Securities" and not
otherwise specifically defined in this Prospectus shall have the meanings
respectively set forth in the Senior Debt Indenture.
Exchange and Transfer. Senior Debt Securities may be presented for exchange
and registered Senior Debt Securities may be presented for registration of
transfer at the offices and subject to the restrictions set forth therein and in
the applicable Prospectus Supplement without service charge, but upon payment of
any taxes or other governmental charges due in connection therewith, subject to
any applicable limitations contained in the Senior Debt Indenture. Senior Debt
Securities in bearer form and the coupons appertaining thereto, if any, will be
transferable by delivery. (Section 2.8)
Payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of the principal of and the premium and interest, if any, on
all Senior Debt Securities in registered form will be made at the office or
agency of the Senior Debt Trustee in the Borough of Manhattan, the City of New
York, except that, at the option of CMS Energy, payment of any interest may be
made (i) by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register or (ii) by wire transfer to an
account maintained by the Person entitled thereto as specified in the Security
Register. (Sections 3.1 and 3.2) Unless otherwise indicated in the applicable
Prospectus Supplement, payment of any interest due on Senior Debt Securities in
registered form will be made to the Persons in whose name such Senior Debt
Securities are registered at the close of business on the Record Date for such
interest payments. (Section 2.3(f))
Events of Default. The occurrence of any of the following events with
respect to the Senior Debt Securities of any series will constitute an "Event of
Default" with respect to the Senior Debt Securities of such series: (a) default
for 30 days in the payment of any interest on any of the Senior Debt Securities
of such series; (b) default in the payment when due of any of the principal of
or the premium, if any, on any of the Senior Debt Securities of such series,
whether at maturity, upon redemption, acceleration or otherwise; (c) default in
the deposit or payment of any sinking fund or analogous payment in respect of
any Senior Debt Securities of such series; (d) default for 60 days by CMS Energy
in the observance or performance of any other covenant or agreement contained in
the Senior Debt Indenture relating to the Senior Debt Securities of such series
after written notice thereof as provided in the Senior Debt Indenture; (e)
certain events of bankruptcy, insolvency or reorganization relating to CMS
Energy or Consumers; (f) entry of final judgments against CMS Energy or
Consumers aggregating in excess of $25,000,000 which remain undischarged or
unbonded for 60 days; or (g) a default resulting in the acceleration of
indebtedness of CMS Energy or Consumers in excess of $25,000,000, which
acceleration has not been rescinded or annulled within 10 days after written
notice of such default as provided in the Senior Debt Indenture. Additional
Events of Default may be prescribed for the benefit of the Holders of a
particular series of Senior Debt Securities and will be described in the
Prospectus Supplement relating to such Senior Debt Securities. (Section 5.1)
If an Event of Default on any series of Senior Debt Securities shall have
occurred and be continuing, either the Senior Debt Trustee or the Holders of not
less than 25% in aggregate principal amount of the Senior
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<PAGE> 29
Debt Securities of such series then Outstanding may declare the principal of all
Senior Debt Securities of such series and the premium thereon and the interest,
if any, accrued thereon to be due and payable immediately. (Section 5.1)
Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Senior Debt Securities of all such affected
series then Outstanding shall have been cured or waived as provided in the
Senior Debt Indenture by the Holders of a majority in aggregate principal amount
of the Senior Debt Securities of the affected series then Outstanding. (Section
5.1)
Reference is made to the Prospectus Supplement relating to any series of
Original Issue Discount Securities for the particular provisions relating to the
acceleration of a portion of the principal amount thereof upon the occurrence
and continuance of an Event of Default with respect thereto.
The Senior Debt Indenture provides that the Senior Debt Trustee will be
under no obligation to exercise any of its rights or powers under the Senior
Debt Indenture at the request, order or direction of the Holders of the Senior
Debt Securities, unless such Holders shall have offered to the Senior Debt
Trustee reasonable indemnity. (Sections 6.1 and 6.2(d)) Subject to such
provisions for indemnity and certain other limitations contained in the Senior
Debt Indenture, the Holders of a majority in aggregate principal amount of the
Senior Debt Securities of each affected series then Outstanding (voting as one
class) will have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Senior Debt Trustee, or
exercising any trust or power conferred on the Senior Debt Trustee, with respect
to the Senior Debt Securities of such affected series. (Sections 5.9 and 6.2)
The Senior Debt Indenture provides that no Holder of Senior Debt Securities
may institute any action against CMS Energy under the Senior Debt Indenture
(except actions for payment of overdue principal, premium or interest) unless
such Holder previously shall have given to the Senior Debt Trustee written
notice of default and continuance thereof and unless the Holders of not less
than 25% in aggregate principal amount of Senior Debt Securities of the affected
series then Outstanding (voting as one class) shall have requested the Senior
Debt Trustee to institute such action and shall have offered the Senior Debt
Trustee reasonable indemnity, the Senior Debt Trustee shall not have instituted
such action within 60 days of such request and the Senior Debt Trustee shall not
have received direction inconsistent with such request by the Holders of a
majority in aggregate principal amount of the Senior Debt Securities of the
affected series then Outstanding (voting as one class). (Sections 5.6, 5.7 and
5.9)
The Senior Debt Indenture requires CMS Energy to furnish to the Senior Debt
Trustee annually a statement as to CMS Energy's compliance with all conditions
and covenants under the Senior Debt Indenture. (Section 4.3(d)) The Senior Debt
Indenture provides that the Senior Debt Trustee may withhold notice to the
Holders of the Senior Debt Securities of any series of any default affecting
such series (except defaults as to payment of principal, premium or interest on
the Senior Debt Securities of such series) if it considers such withholding to
be in the interests of the Holders of the Senior Debt Securities of such series.
(Section 5.11)
Consolidation, Merger or Sale of Assets. The Senior Debt Indenture provides
that CMS Energy may consolidate with or merge into, or sell, lease or convey its
property as an entirety or substantially as an entirety to, any other
corporation if such corporation assumes the obligations of CMS Energy under the
Senior Debt Securities and the Senior Debt Indenture and is organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia. (Section 9.1)
Modification of the Senior Debt Indenture. The Senior Debt Indenture
permits CMS Energy and the Senior Debt Trustee to enter into supplemental
indentures thereto without the consent of the Holders of the Senior Debt
Securities to: (a) secure the Senior Debt Securities of one or more series, (b)
evidence the assumption by a successor corporation of the obligations of CMS
Energy under the Senior Debt Indenture and the Senior Debt Securities then
Outstanding, (c) add covenants for the protection of the Holders of the Senior
Debt Securities, (d) cure any ambiguity or correct any defect or inconsistency
in the Senior Debt Indenture or to make such other provisions as CMS Energy
deems necessary or desirable with respect to matters or questions arising under
the Senior Debt Indenture, provided that no such action adversely affects
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<PAGE> 30
the interests of any Holders of Senior Debt Securities, (e) establish the form
and terms of any series of securities under the Senior Debt Indenture and (f)
evidence the acceptance of appointment by a successor Senior Debt Trustee.
(Section 8.1)
The Senior Debt Indenture also permits CMS Energy and the Senior Debt
Trustee, with the consent of the Holders of not less than a majority in
aggregate principal amount of the Senior Debt Securities of all series then
Outstanding and affected (voting as one class), to enter into supplemental
indentures, to add any provisions to, or change in any manner or eliminate any
of the provisions of, the Senior Debt Indenture or modify in any manner the
rights of the Holders of the Senior Debt Securities of each such affected
series; provided, however, that CMS Energy and the Senior Debt Trustee may not,
without the consent of the Holder of each Senior Debt Security then outstanding
and affected thereby, enter into any supplemental indenture to: (a) change the
time of payment of the principal (or any installment of principal) of any Senior
Debt Security, or reduce the principal amount thereof, or reduce the rate or
change the time of payment of interest thereon, or reduce the amount payable on
any Original Issue Discount Securities upon acceleration or provable in
bankruptcy, or impair the right to institute suit for the enforcement of any
payment on any Senior Debt Security when due; or (b) reduce the percentage in
principal amount of the Senior Debt Securities of the affected series, the
consent of whose Holders is required for any such modification or for any waiver
provided for in the Senior Debt Indenture. (Section 8.2)
Prior to the acceleration of the maturity of any Senior Debt Security, the
Holders of a majority in aggregate principal amount of the Senior Debt
Securities of all series at the time Outstanding with respect to which a default
or an Event of Default shall have occurred and be continuing (voting as one
class) may on behalf of the Holders of all such affected Senior Debt Securities
waive any past default or Event of Default and its consequences, except a
default or an Event of Default in respect of a covenant or provision of the
Senior Debt Indenture or of any Senior Debt Security which cannot be modified or
amended without the consent of the Holder of each Senior Debt Security affected.
(Section 5.10)
Defeasance, Covenant Defeasance and Discharge. The Senior Debt Indenture
provides that, at the option of CMS Energy: (a) CMS Energy will be discharged
from any and all obligations in respect of the Senior Debt Securities of a
particular series then Outstanding (except for certain obligations to register
the transfer of or exchange the Senior Debt Securities of such series, to
replace stolen, lost or mutilated Senior Debt Securities of such series, to
maintain paying agencies and to maintain the trust described below), or (b) CMS
Energy need not comply with certain restrictive covenants of the Senior Debt
Indenture (including those described under "Consolidation, Merger or Sale of
Assets"), in each case if CMS Energy irrevocably deposits in trust with the
Senior Debt Trustee money, and/or securities backed by the full faith and credit
of the United States which, through the payment of the principal thereof and the
interest thereon in accordance with their terms, will provide money in an amount
sufficient to pay all the principal of and premium, if any, and interest on the
Senior Debt Securities of such series on the stated maturity of such Senior Debt
Securities (which may include one or more redemption dates designated by CMS
Energy) in accordance with the terms thereof. To exercise such option, CMS
Energy is required, among other things, to deliver to the Senior Debt Trustee an
opinion of independent counsel to the effect that the exercise of such option
would not cause the Holders of the Senior Debt Securities of such series to
recognize income, gain or loss for United States Federal income tax purposes as
a result of such defeasance, and such Holders will be subject to United States
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such defeasance had not occurred, and, in the
case of a discharge as described in clause (a) of the preceding sentence, such
opinion is to be accompanied by a private letter ruling to the same effect
received from the Internal Revenue Service, a revenue ruling to such effect
pertaining to a comparable form of transaction published by the Internal Revenue
Service or appropriate evidence that since the date of the Senior Debt Indenture
there has been a change in the applicable Federal income tax law. (Section 10.1)
In the event CMS Energy exercises its option to effect a covenant
defeasance with respect to the Senior Debt Securities of any series as described
in the preceding paragraph and the Senior Debt Securities of such series are
thereafter declared due and payable because of the occurrence of any Event of
Default other than an Event of Default caused by failing to comply with the
covenants which are defeased, and the amount of money and securities on deposit
with the Senior Debt Trustee would be insufficient to pay amounts due on the
Senior
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<PAGE> 31
Debt Securities of such series at the time of the acceleration resulting from
such Event of Default, CMS Energy would remain liable for such amounts.
CMS Energy may also obtain a discharge of the Senior Debt Indenture with
respect to all Senior Debt Securities then Outstanding (except for certain
obligations to register the transfer of or exchange such Senior Debt Securities,
to replace stolen, lost or mutilated Senior Debt Securities, to maintain paying
agencies and to maintain the trust described below) by irrevocably depositing in
trust with the Senior Debt Trustee money, and/or securities backed by the full
faith and credit of the United States which, through the payment of the
principal thereof and the interest thereon in accordance with their terms, will
provide money in an amount sufficient to pay all the principal of and premium,
if any, and interest on the Senior Debt Securities on the stated maturities
thereof (including one or more redemption dates), provided that such Senior Debt
Securities are by their terms due and payable, or are to be called for
redemption, within one year. (Section 10.1)
For United States Federal income tax purposes any deposit contemplated in
the preceding paragraph would be treated as an exchange of the Senior Debt
Securities outstanding for other property. Accordingly, Holders of Senior Debt
Securities outstanding may be required to recognize a gain or loss for United
States Federal income tax purposes upon such exchange. In addition, such Holders
thereafter may be required to recognize income from such property which could be
different from the amount that would be includable in the absence of such
deposit. Prospective investors are urged to consult their own tax advisors as to
the specific consequences to them of such deposit.
Governing Law. The Senior Debt Indenture and Senior Debt Securities will be
governed by, and construed in accordance with, the laws of the State of Michigan
unless the laws of another jurisdiction shall mandatorily apply.
Subordinated Debt Securities
General. The Subordinated Debt Securities will be issuable under the
Subordinated Debt Indenture. The Subordinated Debt Indenture does not limit the
aggregate principal amount of Subordinated Debt Securities which may be issued
thereunder. Subordinated Debt Securities may be issued under the Subordinated
Debt Indenture from time to time in one or more series. The Subordinated Debt
Securities shall mature on a date not less than nine months nor more than 40
years after the date of issuance. (Section 2.3) Capitalized terms used in this
section "Subordinated Debt Securities" and not otherwise specifically defined in
this Prospectus shall have the meanings respectively set forth in the
Subordinated Debt Indenture.
Exchange and Transfer. Subordinated Debt Securities may be presented for
exchange and registered Subordinated Debt Securities may be presented for
registration of transfer at the offices and subject to the restrictions set
forth therein and in the applicable Prospectus Supplement without service
charge, but upon payment of any taxes or other governmental charges due in
connection therewith, subject to any applicable limitations contained in the
Subordinated Debt Indenture. Subordinated Debt Securities in bearer form and the
coupons appertaining thereto, if any, will be transferable by delivery. (Section
2.8)
Payment. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of the principal of and the premium and interest, if any, on
all Subordinated Debt Securities in registered form will be made at the office
or agency of the Subordinated Debt Trustee in the City of New York, except that,
at the option of CMS Energy, payment of any interest may be made (i) by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register or (ii) by wire transfer to an account
maintained by the Person entitled thereto as specified in the Security Register.
(Sections 3.1 and 3.2) Unless otherwise indicated in the applicable Prospectus
Supplement, payment of any interest due on Subordinated Debt Securities in
registered form will be made to the Persons in whose name such Subordinated Debt
Securities are registered at the close of business on the Record Date for such
interest payments. (Section 2.3(f))
Events of Default. The occurrence of any of the following events with
respect to the Subordinated Debt Securities of any series will constitute an
"Event of Default" with respect to the Subordinated Debt Securities of such
series: (a) default for 30 days in the payment of any interest on any of the
Subordinated Debt Securities of such series (whether or not payment is
prohibited by the subordination provisions of the
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<PAGE> 32
Subordinated Debt Indenture); provided, however, that if CMS Energy is permitted
by the terms of the Subordinated Debt Securities of the applicable series to
defer the payment in question, the date on which such payment is due and payable
shall be the date on which CMS Energy is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Subordinated Debt Securities; (b) default in the payment when due of any of the
principal of or the premium, if any, on any of the Subordinated Debt Securities
of such series, whether at maturity, upon redemption, acceleration or otherwise
(whether or not payment is prohibited by the subordination provisions of the
Subordinated Debt Indenture); provided, however, that if CMS Energy is permitted
by the terms of the Subordinated Debt Securities of the applicable series to
defer the payment in question, the date on which such payment is due and payable
shall be the date on which CMS Energy is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the
Subordinated Debt Securities; (c) default in the deposit or payment of any
sinking fund or analogous payment in respect of any Subordinated Debt Securities
of such series (whether or not payment is prohibited by the subordination
provisions of the Subordinated Debt Indenture); (d) default for 60 days by CMS
Energy in the observance or performance of any other covenant or agreement
contained in the Subordinated Debt Indenture relating to the Subordinated Debt
Securities of such series after written notice thereof as provided in the
Subordinated Debt Indenture; (e) certain events of bankruptcy, insolvency or
reorganization relating to CMS Energy; (f) entry of final judgments against CMS
Energy or Consumers aggregating in excess of $25,000,000 which remain
undischarged or unbonded for 60 days; or (g) a default resulting in the
acceleration of indebtedness of CMS Energy in excess of $25,000,000, which
acceleration has not been rescinded or annulled within 10 days after written
notice of such default as provided in the Subordinated Debt Indenture.
Additional Events of Default may be prescribed for the benefit of the Holders of
a particular series of Subordinated Debt Securities and will be described in the
Prospectus Supplement relating to such Subordinated Debt Securities. (Section
5.1)
If an Event of Default on any series of Subordinated Debt Securities shall
have occurred and be continuing, either the Subordinated Debt Trustee or the
Holders of not less than 25% in aggregate principal amount of the Subordinated
Debt Securities of such series then Outstanding may declare the principal of all
Subordinated Debt Securities of such series and the interest, if any, accrued
thereon to be due and payable immediately. (Section 5.1)
Upon certain conditions, any such declarations may be rescinded and
annulled if all Events of Default, other than the nonpayment of accelerated
principal, with respect to the Subordinated Debt Securities of all such affected
series then Outstanding shall have been cured or waived as provided in the
Subordinated Debt Indenture by the Holders of a majority in aggregate principal
amount of the Subordinated Debt Securities of the affected series then
Outstanding. (Section 5.1)
Reference is made to the Prospectus Supplement relating to any series of
Original Issue Discount Securities for the particular provisions relating to the
acceleration of a portion of the principal amount thereof upon the occurrence
and continuance of an Event of Default with respect thereto.
The Subordinated Debt Indenture provides that the Subordinated Debt Trustee
will be under no obligation to exercise any of its rights or powers under the
Subordinated Debt Indenture at the request, order or direction of the Holders of
the Subordinated Debt Securities, unless such Holders shall have offered to the
Subordinated Debt Trustee reasonable indemnity. (Sections 6.1 and 6.2(d))
Subject to such provisions for indemnity and certain other limitations contained
in the Subordinated Debt Indenture, the Holders of a majority in aggregate
principal amount of the Subordinated Debt Securities of each affected series
then Outstanding (voting as one class) will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Subordinated Debt Trustee, or exercising any trust or power conferred on the
Subordinated Debt Trustee, with respect to the Subordinated Debt Securities of
such affected series. (Sections 5.9 and 6.2)
The Subordinated Debt Indenture provides that no Holder of Subordinated
Debt Securities may institute any action against CMS Energy under the
Subordinated Debt Indenture (except actions for payment of overdue principal,
premium or interest) unless such Holder previously shall have given to the
Subordinated Debt Trustee written notice of default and continuance thereof and
unless the Holders of not less than 25% in
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<PAGE> 33
aggregate principal amount of the Subordinated Debt Securities of the affected
series then Outstanding (voting as one class) shall have requested the
Subordinated Debt Trustee to institute such action and shall have offered the
Subordinated Debt Trustee reasonable indemnity, the Subordinated Debt Trustee
shall not have instituted such action within 60 days of such request and the
Subordinated Debt Trustee shall not have received direction inconsistent with
such request by the Holders of a majority in aggregate principal amount of the
Subordinated Debt Securities of the affected series then Outstanding (voting as
one class). (Sections 5.6, 5.7 and 5.9)
The Subordinated Debt Indenture requires CMS Energy to furnish to the
Subordinated Debt Trustee annually a statement as to CMS Energy's compliance
with all conditions and covenants under the Subordinated Debt Indenture.
(Section 4.3(d)) The Subordinated Debt Indenture provides that the Subordinated
Debt Trustee may withhold notice to the Holders of the Subordinated Debt
Securities of any series of any default affecting such series (except defaults
as to payment of principal, premium or interest on the Subordinated Debt
Securities of such series) if it considers such withholding to be in the
interests of the Holders of the Subordinated Debt Securities of such series.
(Section 5.11)
Subordination. The Subordinated Debt Indenture provides (and each Holder of
Subordinated Debt Securities by acceptance thereof agrees) that the Subordinated
Debt Securities will be subordinated in right of payment to the prior payment in
full of all Senior Indebtedness (as defined herein) of CMS Energy. (Section
12.1) No payment on account of principal of, premium, if any, or interest on the
Subordinated Debt Securities and no acquisition of, or payment on account of any
sinking fund for, the Subordinated Debt Securities may be made unless full
payment of amounts then due for principal, premium, if any, and interest then
due on all Senior Indebtedness by reason of the maturity thereof (by lapse of
time, acceleration or otherwise) has been made or duly provided for in cash or
in a manner satisfactory to the Holders of such Senior Indebtedness. In
addition, the Subordinated Debt Indenture provides that upon the happening and
during the continuation of any default in payment of the principal of, premium,
if any, or interest on any Senior Indebtedness when the same becomes due and
payable or in the event any judicial proceeding shall be pending with respect to
any such default, then, unless and until such default shall have been cured or
waived or shall have ceased to exist, no payment shall be made by CMS Energy
with respect to the principal of, premium, if any, or interest on Subordinated
Debt Securities or to acquire any Subordinated Debt Securities or on account of
any sinking fund provisions applicable to Subordinated Debt Securities. CMS
Energy shall give prompt written notice to the Subordinated Debt Trustee of any
default in payment of principal of or interest on any Senior Indebtedness.
(Section 12.2) The Subordinated Debt Indenture provisions described in this
paragraph, however, do not prevent CMS Energy from making sinking fund payments
in Subordinated Debt Securities acquired prior to the maturity of Senior
Indebtedness or, in the case of default, prior to such default and notice
thereof. Upon any distribution of its assets in connection with any dissolution,
winding up, liquidation or reorganization of CMS Energy, whether voluntary or
involuntary, in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise: (i) all Senior
Indebtedness must be paid in full before the Holders of the Subordinated Debt
Securities are entitled to any payments whatsoever; and (ii) any payment or
distribution of CMS Energy's assets of any kind or character, whether in cash,
securities or other property, which would otherwise (but for the subordination
provisions) be payable or deliverable in respect of the Subordinated Debt
Securities shall be paid or delivered directly to the Holders of such Senior
Indebtedness (or their representative or trustee) in accordance with the
priorities then existing among such Holders until all Senior Indebtedness shall
have been paid in full before any payment or distribution is made to the Holders
of Subordinated Debt Securities. (Section 12.3) In the event that
notwithstanding such subordination provisions, any payment or distribution of
assets of any kind or character is made on the Subordinated Debt Securities
before all Senior Indebtedness is paid in full, the Subordinated Debt Trustee or
the Holders of Subordinated Debt Securities receiving such payment will be
required to pay over such payment or distribution to the Holders of such Senior
Indebtedness. (Sections 12.2 and 12.3) Subject to the payment in full of all
Senior Indebtedness, the rights of the Holders of the Subordinated Debt
Securities will be subrogated to the rights of the Holders of Senior
Indebtedness to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Subordinated Debt Securities are
paid in full. As a result of the subordination provisions, in the event of CMS
Energy's insolvency, Holders of the Subordinated Debt Securities may recover
ratably less than senior creditors of CMS Energy.
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<PAGE> 34
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date of execution of the
Subordinated Debt Indenture or thereafter incurred, created or assumed: (i)
indebtedness of CMS Energy for money borrowed by CMS Energy (including purchase
money obligations) or evidenced by debentures (other than the Subordinated Debt
Securities), notes, bankers' acceptances or other corporate debt securities or
similar instruments issued by CMS Energy; (ii) obligations with respect to
letters of credit; (iii) all indebtedness of others of the type referred to in
the preceding clauses (i) and (ii) assumed by or guaranteed in any manner by CMS
Energy or in effect guaranteed by CMS Energy; or (iv) renewals, extensions or
refundings of any of the indebtedness referred to in the preceding clauses (i),
(ii) and (iii) unless, in the case of any particular indebtedness, renewal,
extension or refunding, under the express provisions of the instrument creating
or evidencing the same or the assumption or guarantee of the same, or pursuant
to which the same is outstanding, such indebtedness or such renewal, extension
or refunding thereof is not superior in right of payment to the Subordinated
Debt Securities. (Section 12.1)
The Subordinated Debt Indenture does not limit the aggregate amount of
Senior Indebtedness that may be issued. As of September 30, 1996, Senior
Indebtedness of CMS Energy aggregated approximately $1,062 million.
Consolidation, Merger or Sale of Assets. The Subordinated Debt Indenture
provides that CMS Energy may consolidate with or merge into, or sell, lease or
convey its property as an entirety or substantially as an entirety to, any other
corporation if such corporation assumes the obligations of CMS Energy under the
Subordinated Debt Securities and the Subordinated Debt Indenture and is
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia. (Section 9.1)
Conversion Rights. If the Prospectus Supplement provides, the Holders of
Subordinated Debt Securities may convert the Subordinated Debt Securities into
CMS Energy Common Stock, as defined herein (see "Description of Capital Stock"),
at the option of the Holders at the principal amount thereof, or of such portion
thereof, at any time during the period specified in the Prospectus Supplement,
at the conversion price or conversion rate specified in the Prospectus
Supplement; except that, with respect to any Subordinated Debt Securities (or
portion thereof) called for redemption, such conversion right shall terminate at
the close of business on the fifteenth day prior to the date fixed for
redemption of such Subordinated Debt Securities, unless CMS Energy shall default
in payment of the amount due upon redemption thereof (Section 13.2).
The conversion privilege and conversion price or conversion rate will be
adjusted in certain events, including if CMS Energy (i) pays a dividend or makes
a distribution in shares of CMS Energy Common Stock; (ii) subdivides its
outstanding shares of CMS Energy Common Stock into a greater number of shares;
(iii) combines its outstanding shares of CMS Energy Common Stock into a smaller
number of shares; (iv) pays a dividend or makes a distribution on its CMS Energy
Common Stock other than in shares of its CMS Energy Common Stock; (v) issues by
reclassification of its shares of CMS Energy Common Stock any shares of its
capital stock; (vi) issues any rights or warrants to all holders of shares of
its CMS Energy Common Stock entitling them (for a period expiring within 45
days, or such other period as may be specified in the Prospectus Supplement) to
purchase shares of CMS Energy Common Stock (or Convertible Securities) at a
price per share less than the Average Market Price per share for such CMS Energy
Common Stock; and (vii) distributes to all holders of shares of its CMS Energy
Common Stock any assets or debt securities or any rights or warrants to purchase
securities, provided that no adjustment shall be made under (vi) or (vii) above
if the adjusted conversion price would be higher than, or the adjusted
conversion rate would be less than, the conversion price or conversion rate, as
the case may be, in effect prior to such adjustment (Sections 13.7, 13.8 and
13.9). CMS Energy may reduce the conversion price or increase the conversion
rate, temporarily or otherwise, by any amount but in no event shall such
adjusted conversion price or conversion rate result in shares of CMS Energy
Common Stock being issuable upon conversion of the Subordinated Debt Securities
if converted at the time of such adjustment at an effective conversion price per
share less than the par value of the CMS Energy Common Stock at the time such
adjustment is made. (Section 13.10) No adjustments in the conversion price or
conversion rate need be made unless the adjustment would require an increase or
decrease of at least one percent (1%) in the initial conversion price or
conversion rate Any adjustment which is not made shall be carried forward and
taken into account in any subsequent adjustment (Section 13.13).
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<PAGE> 35
Modification of the Subordinated Debt Indenture. The Subordinated Debt
Indenture permits CMS Energy and the Subordinated Debt Trustee to enter into
supplemental indentures thereto without the consent of the Holders of the
Subordinated Debt Securities to: (a) secure the Subordinated Debt Securities of
one or more series, (b) evidence the assumption by a successor corporation of
the obligations of CMS Energy under the Subordinated Debt Indenture and the
Subordinated Debt Securities then Outstanding, (c) add covenants for the
protection of the Holders of the Subordinated Debt Securities, (d) cure any
ambiguity or correct any defect or inconsistency in the Subordinated Debt
Indenture or to make such other provisions as CMS Energy deems necessary or
desirable with respect to matters or questions arising under the Subordinated
Debt Indenture, provided that no such action adversely affects the interests of
any Holders of Subordinated Debt Securities, (e) establish the form and terms of
any series of securities under the Subordinated Debt Indenture and (f) evidence
the acceptance of appointment by a successor Subordinated Debt Trustee. (Section
8.1)
The Subordinated Debt Indenture also permits CMS Energy and the
Subordinated Debt Trustee, with the consent of the Holders of not less than a
majority in aggregate principal amount of the Subordinated Debt Securities of
all series then Outstanding and affected (voting as one class), to enter into
supplemental indentures to add any provisions to, or change in any manner or
eliminate any of the provisions of, the Subordinated Debt Indenture or modify in
any manner the rights of the Holders of the Subordinated Debt Securities of each
such affected series; provided, however, that CMS Energy and the Subordinated
Debt Trustee may not, without the consent of the Holder of each Subordinated
Debt Security then outstanding and affected thereby, enter into a supplemental
indenture to: (a) change the time of payment of the principal (or any
installment of principal) of any Subordinated Debt Security, or reduce the
principal amount thereof, or reduce the rate or change the time of payment of
interest thereon, or reduce the amount payable on any Original Issue Discount
Securities upon acceleration or provable in bankruptcy, or impair the right to
institute suit for the enforcement of any payment on any Subordinated Debt
Security when due; or (b) reduce the percentage in principal amount of the
Subordinated Debt Securities of the affected series, the consent of whose
Holders is required for any such modification or for any waiver provided for in
the Subordinated Debt Indenture. (Section 8.2)
Prior to the acceleration of the maturity of any Subordinated Debt
Security, the Holders of a majority in aggregate principal amount of the
Subordinated Debt Securities of all series at the time Outstanding with respect
to which a default or an Event of Default shall have occurred and be continuing
(voting as one class) may on behalf of the Holders of all such affected
Subordinated Debt Securities waive any past default or Event of Default and its
consequences, except a default or an Event of Default in respect of a covenant
or provision of the Subordinated Debt Indenture or of any Subordinated Debt
Security which cannot be modified or amended without the consent of the Holder
of each Subordinated Debt Security affected. (Section 5.10)
Defeasance, Covenant Defeasance and Discharge. The Subordinated Debt
Indenture provides that, at the option of CMS Energy: (a) CMS Energy will be
discharged from any and all obligations in respect of the Subordinated Debt
Securities of a particular series then Outstanding (except for certain
obligations to register the transfer of or exchange the Subordinated Debt
Securities of such series, to replace stolen, lost or mutilated Subordinated
Debt Securities of such series, to maintain paying agencies and to maintain the
trust described below), or (b) CMS Energy need not comply with certain
restrictive covenants of the Subordinated Debt Indenture (including those
described under "Consolidation, Merger or Sale of Assets"), in each case if CMS
Energy irrevocably deposits in trust with the Subordinated Debt Trustee money,
and/or securities backed by the full faith and credit of the United States
which, through the payment of the principal thereof and the interest thereon in
accordance with their terms, will provide money in an amount sufficient to pay
all the principal of and premium, if any, and interest on the Subordinated Debt
Securities of such series on the stated maturity of such Subordinated Debt
Securities (which may include one or more redemption dates designated by CMS
Energy) in accordance with the terms thereof. To exercise such option, CMS
Energy is required, among other things, to deliver to the Subordinated Debt
Trustee an opinion of independent counsel to the effect that the exercise of
such option would not cause the Holders of the Subordinated Debt Securities of
such series to recognize income, gain or loss for United States Federal income
tax purposes as a result of such defeasance, and such Holders will be subject to
United States Federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not occurred,
and, in
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<PAGE> 36
the case of a discharge as described in clause (a) of the preceding sentence,
such opinion is to be accompanied by a private letter ruling to the same effect
received from the Internal Revenue Service, a revenue ruling to such effect
pertaining to a comparable form of transaction published by the Internal Revenue
Service or appropriate evidence that since the date of the Subordinated Debt
Indenture there has been a change in the applicable Federal income tax law.
(Section 10.1)
In the event CMS Energy exercises its option to effect a covenant
defeasance with respect to the Subordinated Debt Securities of any series as
described in the preceding paragraph and the Subordinated Debt Securities of
such series are thereafter declared due and payable because of the occurrence of
any Event of Default other than an Event of Default caused by failing to comply
with the covenants which are defeased, and the amount of money and securities on
deposit with the Subordinated Debt Trustee would be insufficient to pay amounts
due on the Subordinated Debt Securities of such series at the time of the
acceleration resulting from such Event of Default, CMS Energy would remain
liable for such amounts.
CMS Energy may also obtain a discharge of the Subordinated Debt Indenture
with respect to all Subordinated Debt Securities then Outstanding (except for
certain obligations to register the transfer of or exchange such Subordinated
Debt Securities to replace stolen, lost or mutilated Subordinated Debt
Securities, to maintain paying agencies and to maintain the trust described
below) by irrevocably depositing in trust with the Subordinated Debt Trustee
money, and/or securities backed by the full faith and credit of the United
States which, through the payment of the principal thereof and the interest
thereon in accordance with their terms, will provide money in an amount
sufficient to pay all the principal of and premium, if any and interest on the
Subordinated Debt Securities on the stated maturities thereof (including one or
more redemption dates), provided that such Subordinated Debt Securities are by
their terms due and payable, or are to be called for redemption, within one
year. (Section 10.1)
For United States Federal income tax purposes any deposit contemplated in
the preceding paragraph would be treated as an exchange of the Subordinated Debt
Securities outstanding for other property. Accordingly, holders of Subordinated
Debt Securities outstanding may be required to recognize a gain or loss for
United States Federal income tax purposes upon such exchange. In addition, such
Holders thereafter may be required to recognize income from such property which
could be different from the amount that would be includable in the absence of
such deposit. Prospective investors are urged to consult their own tax advisors
as to the specific consequences to them of such deposit.
Governing Law. The Subordinated Debt Indenture and the Subordinated Debt
Securities will be governed by, and construed in accordance with, the laws of
the State of Michigan except to the extent the laws of another jurisdiction
shall be mandatorily applicable. (Section 14.8).
DESCRIPTION OF CAPITAL STOCK
The following outline of certain rights of the holders of CMS Energy
capital stock does not purport to be complete and is qualified in its entirety
by express reference to the Restated Articles of Incorporation of CMS Energy
(the "Articles of Incorporation") and the By-Laws of CMS Energy, copies of which
are filed as exhibits to the Registration Statement of which this Prospectus is
a part, and by express reference to the 8-B Registration Statement, which is
incorporated into this Prospectus by reference. See "Incorporation of Certain
Documents by Reference" herein.
The authorized capital stock of CMS Energy consists of 250 million shares
of CMS Energy Common Stock, $.01 par value ("CMS Energy Common Stock"), 60
million shares of Class G Common Stock, no par value ("Class G Common Stock"),
and 10 million shares of CMS Energy Preferred Stock, $.01 par value ("Preferred
Stock"). At December 4, 1996, there were outstanding 102,804,397 shares of CMS
Energy Common Stock and 7,856,118 shares of Class G Common Stock; no Preferred
Stock are issued or outstanding. The CMS Energy Common Stock and the Class G
Common Stock are sometimes together referred to herein as the "Common Stock."
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<PAGE> 37
COMMON STOCK
The Class G Common Stock is intended to reflect the separate performance of
the gas distribution, storage and transportation businesses conducted by
Consumers and Michigan Gas Storage, a subsidiary of Consumers (such businesses,
collectively, have been attributed to the "Consumers Gas Group"). The CMS Energy
Common Stock is intended to reflect the performance of all businesses of CMS
Energy and its subsidiaries, including the businesses of the Consumers Gas
Group, except for the interest in the Consumers Gas Group attributable to the
outstanding shares of Class G Common Stock.
Dividend Rights and Policy; Restrictions on Dividends
Dividends on the CMS Energy Common Stock are paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
CMS Energy, including the Consumers Gas Group, except for the interest in the
Consumers Gas Group attributable to the outstanding shares of the Class G Common
Stock, and other factors. Dividends are payable out of the assets of CMS Energy
legally available therefore, including the Available Class G Dividend Amount (as
defined in the Articles of Incorporation).
Dividends on the Class G Common Stock are paid at the discretion of the
Board of Directors based primarily upon the earnings and financial condition of
the Consumers Gas Group, and, to a lesser extent, CMS Energy as a whole.
Dividends are payable out of the lesser of (i) the assets of CMS Energy legally
available therefore and (ii) the Available Class G Dividend Amount. Although the
Available Class G Dividend Amount is intended to reflect the amount available
for dividends to holders of outstanding Class G Common Stock, it is also legally
available for dividends to holders of CMS Energy Common Stock.
CMS Energy, in the sole discretion of its Board of Directors could pay
dividends exclusively to the holders of CMS Energy Common Stock, exclusively to
the holders of Class G Common Stock, or to the holders of both of such classes
in equal or unequal amounts.
CMS Energy is a legal entity separate and distinct from its various
subsidiaries. As a holding company with no significant operations of its own,
the principal sources of its funds are dividends or other distributions from its
operating subsidiaries (in particular, Consumers), borrowings and sales of
equity. The ability of Consumers and other subsidiaries of CMS Energy to pay
dividends or make distributions to CMS Energy, and, accordingly, the ability of
CMS Energy to pay dividends on its capital stock will depend on the earnings,
financial requirements, contractual restrictions of the subsidiaries of CMS
Energy, in particular, Consumers, and other factors.
Dividends on capital stock of CMS Energy are limited by Michigan law to
legally available assets of CMS Energy. Distributions on Common Stock may be
subject to the rights of the holders, if any, of the CMS Energy Preferred Stock.
There are restrictions on CMS Energy's ability to pay dividends contained
in a Credit Agreement dated as of November 21, 1995 among CMS Energy, Citibank,
N.A. and Union Bank, as co-agents, and certain banks named therein, a $125
million Term Loan Agreement dated as of November 21, 1995 among CMS Energy,
Citibank N.A. and Union Bank as co-agents, and certain banks named therein, the
Senior Debt Indenture (as defined herein) and CMS Energy's Indenture, dated as
of January 15, 1994 between CMS Energy and The Chase Manhattan Bank, as Trustee
(the "GTN Indenture"). A discussion of specific restrictions on CMS Energy's
ability to pay dividends will be set forth in an accompanying Prospectus
Supplement pursuant to which convertible Subordinated Debt Securities are
offered.
Voting Rights
The holders of CMS Energy Common Stock vote with the holders of Class G
Common Stock as a single class, except on matters which would be required by law
or the Articles of Incorporation to be voted on by class. Each holder of Common
Stock is entitled to one vote for each share of Common Stock held by such holder
on each matter voted upon by the shareholders. Such right to vote is not
cumulative. A majority of the votes cast by the holders of shares entitled to
vote thereon is sufficient for the adoption of any question presented, except
that certain provisions of the Articles of Incorporation relating to special
shareholder
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<PAGE> 38
meetings, the removal, indemnification and liability of the Board of Directors
and the requirements for amending these provisions may not be amended, altered,
changed or repealed unless such amendment, alteration, change or repeal is
approved by the affirmative vote of at least 75% of the outstanding shares
entitled to vote thereon.
Under Michigan law, the approval of the holders of a majority of the
outstanding shares of a class of Common Stock, voting as a separate class, would
be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other corporation if such merger or
consolidation would adversely affect the powers or special rights of such class
of stock, and to authorize any amendment to the Articles of Incorporation that
would increase or decrease the aggregate number of authorized shares of such
class (except pursuant to Section 303 of the Michigan Business Corporation Act)
or alter or change the powers, preferences or special rights of the shares of
such class so as to affect them adversely. The Articles of Incorporation also
provide that unless the vote or consent of a greater number of shares shall then
be required by law, the vote or consent of the holders of a majority of all the
shares of either class of Common Stock then outstanding, voting as a separate
class, will be necessary for authorizing, effecting or validating the merger or
consolidation of CMS Energy into or with any other entity if such merger or
consolidation would adversely affect the powers or special rights of such class
of Common Stock, either directly by amendment to the Articles of Incorporation
or indirectly by requiring the holders of such class to accept or retain, in
such merger or consolidation, anything other than (i) shares of such class or
(ii) shares of the surviving or resulting corporation, having, in either case,
powers and special rights identical to those of such class prior to such merger
or consolidation. The effect of these provisions may be to permit the holders of
a majority of the outstanding shares of either class of Common Stock to block
any such merger or amendment which would adversely affect the powers or special
rights of holders of such class of Common Stock.
Preemptive Rights
The Articles of Incorporation provide that holders of Common Stock will
have no preemptive rights to subscribe for or purchase any additional shares of
the capital stock of CMS Energy of any class now or hereafter authorized, or
Preferred Stock, bonds, debentures, or other obligations or rights or options
convertible into or exchangeable for or entitling the holder or owner to
subscribe for or purchase any shares of capital stock, or any rights to exchange
shares issued for shares to be issued.
Liquidation Rights
In the event of the dissolution, liquidation or winding up of CMS Energy,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of CMS Energy and after there shall have been paid
or set apart for the holders of Preferred Stock the full preferential amounts
(including any accumulated and unpaid dividends) to which they are entitled, the
holders of CMS Energy Common Stock and Class G Common Stock shall be entitled to
receive, on a per share basis, the same portion of all of the assets of CMS
Energy remaining for distribution to the holders of Common Stock, regardless of
whether or not any of such assets were attributed to the Consumers Gas Group.
Neither the merger or consolidation of CMS Energy into or with any other
corporation, nor the merger or consolidation of any other corporation into or
with CMS Energy nor any sale, transfer or lease of all or any part of the assets
of CMS Energy, shall be deemed to be a dissolution, liquidation or winding up
for the purposes of this provision.
Because CMS Energy has subsidiaries which have debt obligations and other
liabilities of their own, CMS Energy's rights and the rights of its creditors
and its stockholders to participate in the distribution of assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
prior claims of the subsidiary's creditors, except to the extent that CMS Energy
may itself be a creditor with recognized claims against the subsidiary.
Subdivision or Combination
If CMS Energy subdivides (by stock split, stock dividend or otherwise) or
combines (by reverse stock split or otherwise) the outstanding shares of either
Class G Common Stock or CMS Energy Common Stock,
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<PAGE> 39
the voting and liquidation rights of shares of CMS Energy Common Stock relative
to Class G Common Stock will be appropriately adjusted so as to avoid any
dilution in aggregate voting or liquidation rights of either class of Common
Stock. For example, in case CMS Energy were to effect a two-for-one split of
Class G Common Stock, the per share liquidation rights of CMS Energy Common
Stock would be multiplied by two in order to avoid dilution in the aggregate
liquidation rights of holders of CMS Energy Common Stock and each post-split
share of Class G Common Stock would have one-half of a vote.
Exchanges
The Articles of Incorporation do not provide for either the mandatory or
optional exchange or redemption of CMS Energy Common Stock but do provide that
Class G Common Stock may be exchanged for CMS Energy Common Stock as described
in the 8-B Registration Statement.
CMS Energy may exchange the Class G Common Stock for a proportionate number
of shares of a subsidiary that holds all the assets and liabilities attributed
to the Consumers Gas Group, and no other assets and liabilities. If CMS Energy
transfers all or substantially all of the properties and assets attributed to
the Consumers Gas Group, CMS Energy is required, subject to certain exceptions
and conditions, to exchange each outstanding share of Class G Common Stock for a
number of shares of CMS Energy Common Stock having a Fair Market Value (defined
in the Articles of Incorporation) equal to 110% of the Fair Market Value of one
share of Class G Common Stock.
CMS Energy may, in the sole discretion of the Board of Directors, at any
time, exchange each outstanding share of Class G Common Stock for a number of
shares of CMS Energy Common Stock having a Fair Market Value equal to 115% of
the Fair Market Value of one share of Class G Common Stock.
CMS Energy cannot predict the impact of the potential for such exchanges on
the market prices of the CMS Energy Common Stock.
PREFERRED STOCK
The authorized Preferred Stock may be issued without the approval of the
holders of Common Stock in one or more series, from time to time, with each such
series to have such designation, powers, preferences and relative,
participating, optional or other special rights, voting rights, if any, and
qualifications, limitations or restrictions thereof, as shall be stated in a
resolution providing for the issue of any such series adopted by CMS Energy's
Board of Directors. The Articles of Incorporation provide that holders of
Preferred Stock will not have any preemptive rights to subscribe for or purchase
any additional shares of the capital stock of CMS Energy of any class now or
hereafter authorized, or any Preferred Stock, bonds, debentures or other
obligations or rights or options convertible into or exchangeable for or
entitling the holder or owner to subscribe for or purchase any shares of capital
stock. The future issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of CMS Energy.
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DIVIDENDS AND PRICE RANGE OF CMS ENERGY COMMON STOCK
CMS Energy has paid dividends on its outstanding CMS Energy Common Stock,
$.01 par value ("CMS Energy Common Stock"), each year since its inception except
1987 and 1988. At December 4, 1996, there were approximately 88,700 CMS Energy
Common Stock shareholders of record. Future dividends will depend upon CMS
Energy's earnings, financial condition and other factors.
The following table indicates the high and low sales prices of the CMS
Energy Common Stock for the calendar quarters indicated as reported in The Wall
Street Journal under "New York Stock Exchange Composite Transactions," and the
quarterly cash dividends declared per share of CMS Energy Common Stock, for the
calendar quarters indicated.
<TABLE>
<CAPTION>
CMS ENERGY COMMON STOCK
-----------------------------------------------
Price Range
------------------------------
Year High Low Dividend
---- ---- --- --------
<S> <C> <C> <C> <C> <C>
1992: First Quarter........................................ 22 3/4 17 7/8 .12
Second Quarter 21 7/8 14 7/8 .12
Third Quarter........................................ 17 1/2 15 1/4 .12
Fourth Quarter 18 3/8 16 3/4 .12
1993: First Quarter........................................ 20 7/8 17 7/8 .12
Second Quarter....................................... 25 1/2 19 1/2 .12
Third Quarter........................................ 27 1/2 24 7/8 .18
Fourth Quarter....................................... 27 1/8 23 .18
1994: First Quarter........................................ 25 21 1/8 .18
Second Quarter....................................... 22 7/8 19 5/8 .18
Third Quarter........................................ 23 3/8 20 5/8 .21
Fourth Quarter....................................... 23 1/4 20 7/8 .21
1995: First Quarter........................................ 24 3/4 22 5/8 .21
Second Quarter....................................... 25 3/8 22 1/2 .21
Third Quarter........................................ 26 3/8 23 3/8 .24
Fourth Quarter....................................... 30 26 .24
1996: First Quarter........................................ 31 7/8 27 13/16 .24
Second Quarter....................................... 31 1/4 28 .24
Third Quarter 31 5/8 29 .27
Fourth Quarter (through December 4, 1996)............ 33 1/4 30 1/8 .27
</TABLE>
The last reported sale price of CMS Energy Common Stock on December 4, 1996
on the NYSE was $33.
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LEGAL OPINIONS
Opinions as to the legality of the Offered Securities offered hereby will
be rendered for CMS Energy by Michael D. VanHemert, Assistant General Counsel
for CMS Energy. Certain legal matters with respect to Offered Securities will be
passed upon by Reid & Priest, LLP, counsel for any underwriters, dealers or
agents who will be named in the related Prospectus Supplement. Reid & Priest LLP
provides legal services to an affiliate of CMS Energy and has, from time to
time, provided legal services to CMS Energy.
EXPERTS
The consolidated financial statements and schedules of CMS Energy as of
December 31, 1995 and 1994, and for each of the three years in the period ended
December 31, 1995 incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
With respect to the unaudited interim consolidated financial information
for the periods ended March 31, June 30, and September 30, 1995 and 1996, Arthur
Andersen LLP has applied limited procedures in accordance with professional
standards for a review of such information. However, their separate reports
thereon state that they did not audit and they did not express an opinion on
that interim consolidated financial information. Accordingly, the degree of
reliance on their reports on that information should be restricted in light of
the limited nature of the review procedures applied. In addition, the
accountants are not subject to the liability provisions of Section 11 of the
Securities Act of 1933, as amended ("Securities Act"), for their reports on the
unaudited interim consolidated financial information because these reports are
not "reports" or "part" of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.
Future consolidated financial statements of CMS Energy and the reports
thereon of Arthur Andersen LLP also will be incorporated by reference in this
Prospectus in reliance upon the authority of that firm as experts in giving
those reports to the extent that said firm has audited said consolidated
financial statements and consented to the use of their reports thereon.
PLAN OF DISTRIBUTION
CMS Energy may sell the Offered Securities (i) through the solicitation of
proposals of underwriters or dealers to purchase the Offered Securities; (ii)
through underwriters or dealers on a negotiated basis, (iii) directly to a
limited number of purchasers or to a single purchaser; or (iv) through agents.
The Prospectus Supplement with respect to any Offered Securities will set forth
the terms of such offering, including the name or names of any underwriters,
dealers or agents; the purchase price of the Offered Securities and the proceeds
to CMS Energy from such sale; any underwriting discounts and commissions and
other items constituting underwriters' compensation; any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
and any securities exchange on which such Offered Securities may be listed. Any
initial public offering price, discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
If underwriters are used in the sale, the Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
The Offered Securities may be offered to the public either through underwriting
syndicates represented by one or more managing underwriters or directly by one
or more firms acting as underwriters. The underwriter or underwriters with
respect to a particular underwritten offering of Offered Securities will be
named in the Prospectus Supplement relating to such offering and, if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover of such Prospectus Supplement. Unless otherwise set forth
in the Prospectus Supplement relating thereto, the obligations of the
underwriters to purchase the
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Offered Securities will be subject to certain conditions precedent, and the
underwriters will be obligated to purchase all the Offered Securities if any are
purchased.
If dealers are utilized in the sale of Offered Securities, CMS Energy will
sell such Offered Securities to the dealers as principals. The dealers may then
resell such Offered Securities to the public at varying prices to be determined
by such dealers at the time of resale. The names of the dealers and the terms of
the transaction will be set forth in the Prospectus Supplement relating thereto.
The Offered Securities may be sold directly by CMS Energy or through agents
designated by CMS Energy from time to time. Any agent involved in the offer or
sale of the Offered Securities in respect to which this Prospectus is delivered
will be named, and any commissions payable by CMS Energy to such agent will be
set forth, in the Prospectus Supplement relating thereto. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment.
The Offered Securities may be sold directly by CMS Energy to institutional
investors or others, who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any resale thereof. The terms of any such
sales will be described in the Prospectus Supplement relating thereto.
Agents, dealers and underwriters may be entitled under agreements with CMS
Energy to indemnification by CMS Energy against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which such agents, dealers or underwriters may be required to make
in respect thereof. Agents, dealers and underwriters may be customers of, engage
in transactions with, or perform services for CMS Energy in the ordinary course
of business.
The Offered Securities may or may not be listed on a national securities
exchange. Reference is made to the Prospectus Supplement with regard to such
matter. No assurance can be given that there will be a market for any of the
Offered Securities.
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CMS ENERGY LOGO
